Schwab Core Equity Fund NCSR Certified annual shareholder report (management investment company)

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Contracts

Notional
Amount
($)

Current Value/
Unrealized
Appreciation
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Futures Contracts

S&P 500 Index, e-mini, expires 12/15/17

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-7704

Schwab Capital Trust

(Exact name of registrant as specified in charter)

211 Main Street, San Francisco, California 94105

(Address of principal executive offices) (Zip code)

Marie Chandoha

Schwab Capital Trust

211 Main Street, San Francisco, California 94105

(Name and address of agent for service)

Registrant’s telephone number, including area code: (415) 636-7000

Date of fiscal year end: October 31

Date of reporting period: October 31, 2017

Item 1:

Report(s) to Shareholders.

Annual Report | October 31, 2017

Laudus MarketMasters Funds^™

Laudus Small-Cap MarketMasters Fund™

Laudus International MarketMasters Fund™

This page is intentionally left blank.

Two distinct Funds, each combining the expertise of leading investment managers with CSIM’s overall supervision.

In This Report

Performance at a Glance	2
From the President	3
The Investment Environment	5
Fund Management	7
Performance and Fund Facts
Laudus Small-Cap MarketMasters Fund	8
Laudus International MarketMasters Fund	12
Fund Expenses	16
Financial Statements and Portfolio Holdings
Laudus Small-Cap MarketMasters Fund	17
Laudus International MarketMasters Fund	25
Financial Notes	42
Report of Independent Registered Public Accounting Firm	54
Other Federal Tax Information	55
Investment Advisory and Sub-Advisory Agreement Approval	56
Trustees and Officers	59
Glossary	63

Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM).

Distributor: Charles Schwab & Co., Inc. (Schwab)

The Sector/Industry classifications in this report use the Global Industry Classification Standard (GICS), which was developed by, and is the exclusive property of, MSCI Inc. (MSCI) and Standard & Poor’s (S&P). GICS is a service mark of MSCI and S&P and has been licensed for use by Schwab. The Industry classifications used in the schedules of Portfolio Holdings are sub-categories of Sector classifications.

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Laudus MarketMasters Funds

Performance at a Glance

The performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment will fluctuate so that an investor’s shares may be worth more or less than their original cost. Current performance may be lower or higher than performance data quoted. To obtain performance information current to the most recent month end, please visit www.schwabfunds.com/laudusfunds_prospectus.

Total Return for the 12 Months Ended October 31, 2017
Laudus Small-Cap MarketMasters Fund
Investor Shares (Ticker Symbol: SWOSX)	25.89%
Select Shares^® (Ticker Symbol: SWMSX)	26.02%
Russell 2000^® Index	27.85%
Fund Category: Morningstar Small Blend¹	24.89%
Performance Details	pages 8-11

Laudus International MarketMasters Fund
Investor Shares² (Ticker Symbol: SWOIX)	28.35%
Select Shares^®² (Ticker Symbol: SWMIX)	28.52%
MSCI EAFE^® Index (Net)³	23.44%
Fund Category: Morningstar Foreign Large Growth¹	25.00%
Performance Details	pages 12-15

Minimum Initial Investment⁴
Investor Shares	$ 100
Select Shares^®	$ 50,000

All total returns on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.

For index definitions, please see the Glossary.

Fund expenses may have been partially absorbed by CSIM and its affiliates. Without these reductions, a fund’s total return would have been lower. Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption of fund shares.

Small-company stocks are subject to greater volatility than other asset categories.

Foreign securities can involve risks such as political and economic instability and currency risk. These risks may be greater in emerging markets.

¹	Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
²	The fund’s performance relative to the index may be affected by fair-value pricing and timing differences in foreign exchange calculations. See financial note 2 for more information.
³	The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes.
⁴	Please see the funds’ prospectus for further detail and eligibility requirements.

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Laudus MarketMasters Funds

From the President

Marie Chandoha
President and CEO of
Charles Schwab Investment
Management, Inc. and the
funds covered in this report.

Dear Shareholder,

Investors tend to think about risk differently. But one ingredient we’ve found that holds fairly consistent is that while investors seek attractive returns, they also want to preserve their capital and protect against the downside. Eight years into the current bull market, we find it an appropriate time to revisit the topic with you, and assure you of our commitment to risk management.

We introduced the Laudus MarketMasters Funds to help meet the needs of investors who want access to multiple institutional investment managers while diversifying their portfolios with investments in international markets and small-cap stocks. Both asset classes offer diverse growth opportunities for investors.

Of course, investing in these asset classes entails a different set of risks than those faced when investing in U.S. large-cap stocks. International risks can and often do include geopolitical instability, regime change, currency fluctuations, and changes in local laws and regulations. Small caps, on the other hand, may be vulnerable to factors such as low liquidity, limited access to capital, and unproven business models. Active managers can play a vital role in addressing these challenges, by setting firm parameters around investments included in the funds’ portfolios and monitoring for market changes that could change the outlook.

The team at Charles Schwab Investment Management (CSIM) that oversees manager selection and provides ongoing oversight of the Laudus MarketMasters Funds’ sub-advisers makes risk management an integral part of its process. Each sub-adviser candidate is analyzed by quantitative factors such as consistency of returns and performance over a full market cycle, and qualitative factors such as experience, risk controls, and investment process. The CSIM team evaluates each sub-adviser’s risk from multiple perspectives, including risks tied to investments, operations, legal matters, and compliance. Then the team makes on-site visits to meet not just with the portfolio managers, but also with the supporting analysts, risk team, and senior management. In addition, because multi-manager strategies combine the skills and expertise of diverse investment managers in one fund, investment risk is spread across these managers within the fund.

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Laudus MarketMasters Funds

From the President (continued)

“ Each sub-adviser candidate is analyzed by quantitative factors such as consistency of returns and performance over a full market cycle, and qualitative factors such as experience of the team, risk controls, and investment process.”

Our commitment to helping our shareholders manage risk through a disciplined approach continues to garner us recognition as a trusted asset manager. Earlier this year, we were named one of Morningstar’s “9 Partners for the Next Decade,”¹ reflecting our differentiation, low costs, and repeatable investment strategies. While we’re proud of such achievements, most importantly, we’re honored to serve our investors. We’re committed to putting investors first—a commitment that will continue to inform how we operate and the decisions that we make.

Thank you for investing with Charles Schwab Investment Management, and for trusting us to help you achieve your financial goals. For more information about the Laudus MarketMasters Funds and for the funds’ financial statements, please continue reading this report. In addition, you can find further details about these funds by visiting our website at www.schwabfunds.com. We are also happy to hear from you at 1-877-824-5615.

Sincerely,

Management views may have changed since the report date.

Morningstar, “9 Partners for the Next Decade.” Laura Pavlenko Lutton and Greggory Warren, CFA: April 27, 2017. Morningstar looked collectively across four traits (differentiation, low costs, repeatable investment processes, and adaptable business models) to identify firms that they believe are representative of these trends.

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Laudus MarketMasters Funds

The Investment Environment

Over the 12-month reporting period ended October 31, 2017, both U.S. and international equity markets generated solid returns. Stocks rallied amid potential policy changes in Washington, generally accommodative central bank policy measures, and strengthening global growth. Due in part to solid global economic growth, traditionally cyclical sectors, such as Information Technology and Health Care, generally outperformed more value-oriented sectors, such as Consumer Staples and Energy. In this environment, the S&P 500^® Index, a bellwether for the overall U.S. stock market, returned 23.63%, while the Russell 2000^® Index, a U.S. small-cap company performance measure, returned 27.85%. Internationally, the MSCI EAFE^® Index (Net)*, a broad measure of international developed equity performance, returned 23.44% for the 12-month reporting period.

Global economic growth improved over the reporting period. In August, all 45 of the major economies tracked by the Organization for Economic Cooperation and Development were growing together for the first time in a decade, with many on track to grow faster than they did in 2016. In the U.S., economic data remained generally solid over the reporting period. The labor market strengthened as unemployment remained low and nonfarm payroll numbers continued to trend in line with expectations, though wage growth remained sluggish amid weak inflation. After a slow 2016 and beginning to 2017, quarterly gross domestic product (GDP) picked up in the second quarter to an annualized pace of 3.1%, driven by an increase in personal consumption expenditures. Consumer confidence also remained high, peaking soon after the U.S. presidential election and remaining elevated throughout the reporting period. Internationally, the eurozone’s recovery accelerated over the reporting period, hitting an annualized pace of 2.3% growth in the second quarter of 2017. GDP also grew in Japan over the reporting period amid strong consumer spending and exports, marking seven straight quarters of growth and the longest run in nearly two decades.

Asset Class Performance Comparison % returns during the 12 months ended October 31, 2017

Index figures assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized. Past performance is not an indication of future results.

For index definitions, please see the Glossary.

Data source: Index provider websites and CSIM.

Nothing in this report represents a recommendation of a security by the investment adviser.

Management views may have changed since the report date.

*	The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes.

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Laudus MarketMasters Funds

The Investment Environment (continued)

During the 12-month reporting period, monetary policy remained generally accommodative across the globe, though several central banks took steps toward tighter policies. In the U.S., the Federal Reserve (Fed) raised short-term interest rates three times over the reporting period, in December, March, and June, despite continued low levels of inflation. The increases were in increments of 0.25%, with the federal funds rate ending the reporting period in a range of 1.00% to 1.25%. However, even with progress toward a more normalized interest rate environment, U.S. interest rates remained low by historical averages. The Fed also announced in September it would begin unwinding its $4.5 trillion balance sheet in late 2017 by allowing securities to mature without reinvesting the proceeds. Outside the U.S., the European Central Bank (ECB) announced that while it would begin to slow the pace of its bond purchases, it would continue the bond buying program through September 2018. The Bank of England (BoE) maintained interest rates at or near record lows, while the Bank of Japan introduced yield curve management as a policy tool in September 2017 and maintained negative interest rates throughout the reporting period. Though inflation remained stubbornly low across much of Europe and Asia, the strengthening global economy prompted some central banks to reiterate that monetary policy normalization could occur sooner than some expect. In June, ECB president Mario Draghi hinted that investors should be prepared for balance sheet unwinding, and BoE governor Mark Carney in August cautioned that a rate increase may come as soon as within the next year. (After the end of the reporting period in early November, the BoE raised its benchmark rate to 0.5%—the first increase in 10 years.)

Market volatility was noticeably subdued over the reporting period, outside of a few bumps tied to political uncertainty in the U.S. and abroad and periods of escalating tensions in North Korea. Otherwise market volatility, as measured by the CBOE Volatility Index^®¹ (or VIX^®), fell over the reporting period, hitting an all-time low in early October. These low levels of volatility, combined with high consumer confidence, contributed to the momentum-driven rally in cyclical sectors. Meanwhile, most equities rose over the 12-month reporting period, with stock markets in the U.S. reaching record highs several times over the year. In late 2016 and early 2017, U.S. stocks rallied amid expectations for policy changes from the Trump administration, including financial deregulation, increased infrastructure spending, and tax reform. As the reporting period continued and meaningful progress stalled in Washington, strong corporate earnings and solid underlying economic data drove the positive performance of U.S. stocks. Outside the U.S., the performance of international developed stocks continued to be supported by generally accommodative monetary policies and improving global growth.

¹	The CBOE Volatility Index^® (or VIX^®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices.

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Laudus MarketMasters Funds

Fund Management

Omar Aguilar, Ph.D., Senior Vice President and Chief Investment Officer of Equities and Multi-Asset Strategies, has overall responsibility for all aspects of the management of the funds. Prior to joining CSIM in 2011, Mr. Aguilar was with Financial Engines, where he was responsible for managing assets from leading retirement plan sponsors in the defined contribution market. Prior to joining Financial Engines in 2009, Mr. Aguilar was the head of quantitative equity for ING Investment Management, where he was responsible for building and developing the firm’s quantitative equity group. He joined ING in 2004 from Lehman Brothers, where he served as the head of quantitative research for its alternative investment management business. Prior to that, he was a director of quantitative research and portfolio manager with Merrill Lynch Investment Management and Bankers Trust.

Jane Shi, Portfolio Manager, is responsible for the day-to-day co-management of the funds. Prior to joining CSIM in 2011, Ms. Shi was a vice president investment analyst at Bailard, Inc. since 2006, where she developed quantitative models for domestic equity and tactical asset allocation strategies, and was also responsible for performance measurement and attribution. Prior to that, she was a treasury analyst at Sun Microsystems, Inc.

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Laudus Small-Cap MarketMasters Fund

The Laudus MarketMasters Funds use a multi-manager strategy. Charles Schwab Investment Management, Inc. (CSIM)—the funds’ investment adviser—selects investment sub-advisers with strong long-term track records to manage a portion of each fund’s assets. In addition to selecting investment sub-advisers and allocating assets among them, CSIM is responsible for monitoring and coordinating the overall management of the funds. Each sub-adviser manages its respective portfolio relative to a comparative index that reflects its individual process and philosophy. The sub-adviser comparative indices may differ from a fund’s comparative index.

Market Highlights. U.S. stocks performed well over the reporting period, with small-cap stocks outperforming large-cap stocks. Expectations for policy changes from the Trump administration and strong corporate earnings drove this performance, as did solid economic data in both the U.S. and abroad. The Federal Reserve raised short-term interest rates three times during the 12-month reporting period, signaling its continued confidence in the U.S. economy and future inflation, while market volatility remained historically low. From a sector perspective among U.S. small-cap stocks, the Health Care and Industrials sectors were the top performers, while the Energy and Consumer Staples sectors lagged behind.

Performance. For the 12-month reporting period ended October 31, 2017, the Investor Shares of the Laudus Small-Cap MarketMasters Fund (the fund) returned 25.89%, underperforming the fund’s comparative index, the Russell 2000^® Index (the index), which returned 27.85%.

Positioning and Strategies. Over the 12-month reporting period, three of the fund’s underlying sub-advisers underperformed their comparative indices, while the remaining sub-adviser outperformed.

Wellington Management Company LLP, the fund’s value sub-adviser, detracted from the fund’s relative performance for the reporting period, as a result of Wellington underperforming its comparative index, the Russell 2000^® Value Index. Wellington’s stock selection detracted across multiple sectors, most significantly within the Industrials, Consumer Discretionary, and Consumer Staples sectors. Its sector allocations also detracted from relative performance, most notably from its underweights of the Financials and Information Technology sectors.

Voya Investment Management Co. LLC, with its small-cap growth focus, was added as a sub-adviser to the fund in January of this year. From January 9, 2017, to the end of the reporting period, Voya underperformed its comparative index, but generated a positive return and contributed to the fund’s relative performance. Voya’s underperformance was primarily due to stock selection within the Consumer Discretionary and Information Technology sectors. Its allocation across sectors contributed, however, most notably due to its underweight to the Consumer Staples sector and overweight to the Telecommunication Services sector.

The Boston Company Asset Management LLC, which employs a small-mid-cap core strategy, generated a positive return and outperformed its comparative index, contributing to the fund’s relative performance. This outperformance was primarily due to stock selection in the Financials, Consumer Discretionary, and Industrials sectors. Its sector allocations detracted from relative performance, however, most significantly from its overweight of the Consumer Discretionary sector and underweight of the Health Care sector. This was not enough to offset the positive effects of The Boston Company’s stock selection.

Mellon Capital Management Corp. seeks to track the performance of the fund’s index, employing a strategic trading approach to minimize transaction costs and preserve value. From the beginning of the reporting period through January 8, 2017, the fund’s allocation to Mellon performed in line with this objective, slightly underperforming its comparative index. Please note that in connection with the addition of Voya as sub-adviser to the fund, effective January 9, 2017, Mellon no longer actively manages fund assets.

Management views may have changed since the report date.

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Laudus Small-Cap MarketMasters Fund

Performance and Fund Facts as of October 31, 2017

Performance of Hypothetical Investment (October 31, 2007 – October 31, 2017)¹

¹	Fund expenses may have been partially absorbed by CSIM and its affiliates. Without these reductions, the fund’s returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

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Laudus Small-Cap MarketMasters Fund

Performance and Fund Facts as of October 31, 2017 (continued)

Average Annual Total Returns¹

Fund and Inception Date	1 Year	5 Years	10 Years
Investor Shares (9/16/97)	25.89%	11.13%	5.24%
Select Shares^® (6/9/04)	26.02%	11.29%	5.39%
Russell 2000^® Index	27.85%	14.49%	7.63%
Fund Category: Morningstar Small Blend²	24.89%	13.40%	7.07%
Fund Expense Ratios³: Investor Shares: Net 1.35%; Gross 1.56% / Select Shares: Net 1.20%; Gross 1.52%

Investment Managers and Allocations⁴

Investment Managers	Investment Style	% of Net Assets
Voya Investment Management Co. LLC	Small-Cap Growth	39.9%
Wellington Management Company, LLP	Small-Cap Value	36.0%
The Boston Company Asset Management, LLC	Small-/Mid-Cap Core	22.4%
Mellon Capital Management Corp.	Small-Cap Blend	0.0% ⁵
Cash & other assets		1.7%

For index definitions, please see the Glossary.

¹	Fund expenses may have been partially absorbed by CSIM and its affiliates. Without these reductions, the fund’s returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
²	Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
³	As stated in the prospectus. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as the investment adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual ratios during the period, refer to the financial highlights section of the financial statements.
⁴	For more information about each of the investment manager’s investment styles, refer to the fund’s prospectus.
⁵	Less than 0.05%.

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Laudus Small-Cap MarketMasters Fund

Performance and Fund Facts as of October 31, 2017 (continued)

Statistics¹

Number of Holdings	276
Weighted Average Market Cap (millions)	$3,047
Price/Earnings Ratio (P/E)	23.5
Price/Book Ratio (P/B)	2.4
Portfolio Turnover Rate	106%

Sector Weightings % of Investments²

Top Equity Holdings % of Net Assets³

Portfolio holdings may have changed since the report date.

Source of Sector Classification: S& P and MSCI.

Small-company stocks are subject to greater volatility than many other asset classes.

¹	Excludes derivatives.
²	The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets.
³	This list is not a recommendation of any security by the investment adviser.

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Laudus International MarketMasters Fund

Market Highlights. Both developed international large-cap and emerging market stocks generated solid gains over the 12-month reporting period. Global economic growth strengthened and despite a few spikes tied to elections and geopolitical tensions, market volatility was historically low. Meanwhile, many central banks, including the European Central Bank and the Bank of Japan, maintained generally accommodative monetary policies. In addition, many international currencies appreciated against the U.S. dollar over the reporting period, generally enhancing returns on overseas investments in U.S. dollar terms.

Performance. For the 12-month period ended October 31, 2017, the Investor Shares of the Laudus International MarketMasters Fund (the fund) returned 28.35%, outperforming the fund’s comparative index, the MSCI EAFE^® Index (Net) (the index), which returned 23.44%.

Positioning and Strategies. Over the 12-month reporting period, all four of the fund’s active underlying sub-advisers outperformed their comparative indices.

Among the fund’s four active sub-advisers, Harris Associates L.P. posted the strongest absolute return and outperformed its international value comparative index. Harris’s stock selection contributed positively to both its performance relative to its comparative index and to the fund’s relative performance, primarily due to selection in the Financials and Industrials sectors, and within the United Kingdom and France. Harris’s allocation across sectors and country segments detracted slightly from the fund’s relative performance, most notably in the Consumer Discretionary and Energy sectors and in Spain and Mexico.

American Century Investment Management, Inc., which focuses on international small-cap growth, also contributed positively to both relative and absolute performance. American Century outperformed its comparative index, largely due to stock selection in the Health Care and Materials sectors, and in Canada and China. American Century’s sector allocations further boosted its relative contribution, most notably due to its overweights to the Information Technology and Real Estate sectors.

The fund’s exposure to William Blair Investment Management, LLC, with its focus on international multi-cap growth, contributed to the fund’s overall relative performance. Stock selection across market sectors contributed, especially in the Health Care and Materials sectors. From a sector allocation standpoint, William Blair’s underweight of the Consumer Staples sector and overweight of the Financials sector also contributed to relative performance. Overall stock selection within country segments contributed to relative performance, most notably in Switzerland and India, while stock selection in Brazil and France detracted.

The fund’s allocation to Mondrian Investment Partners Limited, with its international small-cap value focus, positively contributed to total return and contributed to performance relative to the index. Mondrian outperformed its comparative index, largely due to allocation across sectors, most notably due to an overweight to the Industrials sector, an underweight to the Real Estate sector, and lack of exposure to the Energy sector. Mondrian’s stock selection also enhanced performance, most significantly within the Consumer Staples and Real Estate sectors. Geographically, Mondrian’s allocation to Japan provided the strongest contribution, while allocation to New Zealand detracted the most.

Mellon Capital Management Corp. seeks to track the performance of the fund’s index by employing a strategic trading approach to minimize transaction costs and preserve value. Over the 12-month reporting period, the fund’s allocation to Mellon performed in line with this objective, outperforming its comparative index.

Over the 12-month reporting period, the fund made no active adjustments to its investment manager exposures.

Management views may have changed since the report date.

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Laudus International MarketMasters Fund

Performance and Fund Facts as of October 31, 2017

Performance of Hypothetical Investment (October 31, 2007 – October 31, 2017)¹

¹	Fund expenses may have been partially absorbed by CSIM and its affiliates. Without these reductions, the fund’s returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

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Laudus International MarketMasters Fund

Performance and Fund Facts as of October 31, 2017 (continued)

Average Annual Total Returns¹

Fund and Inception Date	1 Year	5 Years	10 Years
Investor Shares (10/16/96)	28.35%	9.98%	3.46%
Select Shares^® (4/2/04)	28.52%	10.14%	3.61%
MSCI EAFE^® Index (Net)²	23.44%	8.53%	1.10%
MSCI EAFE^® Index (Gross)	24.01%	9.01%	1.58%
Fund Category: Morningstar Foreign Large Growth³	25.00%	9.13%	1.90%
Fund Expense Ratios⁴: Investor Shares: Net 1.40%; Gross 1.61% / Select Shares: Net 1.25%; Gross 1.54%

Investment Managers and Allocations⁵

Investment Managers	Investment Style	% of Net Assets
American Century Investment Management, Inc.	International Small-Cap Growth	27.9%
Harris Associates L.P.	International Large-Cap Value	26.3%
Mondrian Investment Partners Limited	International Small-Cap Value	21.3%
William Blair Investment Management, LLC	International Multi-Cap Growth	20.2%
Mellon Capital Management Corp.	International Blend	3.5%
Cash & other assets		0.8%

The first index listed for the fund is the fund’s primary benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.

For index definitions, please see the Glossary.

The fund’s performance relative to the index may be affected by fair-value pricing. See financial note 2 for more information.

¹	Fund expenses may have been partially absorbed by CSIM and its affiliates. Without these reductions, the fund’s returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
²	The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes.
³	Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
⁴	As stated in the prospectus. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as the investment adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual ratios during the period, refer to the financial highlights section of the financial statements.
⁵	For more information about each of the investment manager’s investment styles, refer to the fund’s prospectus.

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Laudus International MarketMasters Fund

Performance and Fund Facts as of October 31, 2017 (continued)

Statistics¹

Number of Holdings	1,228
Weighted Average Market Cap (millions)	$29,595
Price/Earnings Ratio (P/E)	19.1
Price/Book Ratio (P/B)	2.4
Portfolio Turnover Rate	71%

Sector Weightings % of Investments¹

Top Equity Holdings % of Net Assets²

Top Country Weightings % of Investments³

Portfolio holdings may have changed since the report date.

Source of Sector Classification: S&P and MSCI.

International investments are subject to additional risks such as currency fluctuation, geopolitical risk and the potential for illiquid markets. Investing in emerging markets may accentuate these risks.

¹	Excludes derivatives.
²	This list is not a recommendation of any security by the investment adviser.
³	The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets.

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Laudus MarketMasters Funds

Fund Expenses (Unaudited)

Examples for a $1,000 Investment

As a fund shareholder, you may incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, transfer agent and shareholder services fees, and other fund expenses.

The expense examples below are intended to help you understand your ongoing cost (in dollars) of investing in a fund and to compare this cost with the ongoing cost of investing in other mutual funds. These examples are based on an investment of $1,000 invested for six months beginning May 1, 2017 and held through October 31, 2017.

Actual Return lines in the table below provide information about actual account values and actual expenses. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value ÷ $1,000 = 8.6), then multiply the result by the number given for your fund under the heading entitled “Expenses Paid During Period.”

Hypothetical Return lines in the table below provide information about hypothetical account values and hypothetical expenses based on a fund’s or share class’ actual expense ratio and an assumed return of 5% per year before expenses. Because the return used is not an actual return, it may not be used to estimate the actual ending account value or expenses you paid for the period.

You may use this information to compare the ongoing costs of investing in a fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only, and do not reflect any transactional costs. Therefore, the hypothetical return lines of the table are useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Expense Ratio (Annualized)¹	Beginning Account Value at 5/1/17	Ending Account Value (Net of Expenses) at 10/31/17	Expenses Paid During Period 5/1/17-10/31/17²
Laudus Small-Cap MarketMasters Fund
Investor Shares
Actual Return	1.35%	$1,000.00	$1,048.80	$6.97
Hypothetical 5% Return	1.35%	$1,000.00	$1,018.39	$6.87
Select Shares
Actual Return	1.20%	$1,000.00	$1,049.40	$6.20
Hypothetical 5% Return	1.20%	$1,000.00	$1,019.15	$6.11
Laudus International MarketMasters Fund
Investor Shares
Actual Return	1.40%	$1,000.00	$1,143.70	$7.56
Hypothetical 5% Return	1.40%	$1,000.00	$1,018.14	$7.12
Select Shares
Actual Return	1.25%	$1,000.00	$1,144.30	$6.76
Hypothetical 5% Return	1.25%	$1,000.00	$1,018.90	$6.36

¹	Based on the most recent six-month expense ratio; may differ from the expense ratio provided in the Financial Highlights which covers a 12-month period.
²	Expenses for each fund or share class are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by the 184 days of the period, and divided by the 365 days of the fiscal year.

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Laudus MarketMasters Funds | Annual Report

Table of Contents

Laudus Small-Cap MarketMasters Fund

Financial Statements

Financial Highlights

Investor Shares	11/1/16– 10/31/17	11/1/15– 10/31/16	11/1/14– 10/31/15	11/1/13– 10/31/14	11/1/12– 10/31/13
Per-Share Data
Net asset value at beginning of period	$16.22	$17.42	$18.02	$17.28	$13.14
Income (loss) from investment operations:
Net investment income (loss)¹	0.00 ²	0.01	(0.05)	(0.05)	(0.02)
Net realized and unrealized gains (losses)	4.19	(0.15)	(0.17) ³	0.79	4.16
Total from investment operations	4.19	(0.14)	(0.22)	0.74	4.14
Less distributions:
Distributions from net investment income	(0.03)	—	(0.03)	—	—
Distributions from net realized gains	(0.19)	(1.06)	(0.35)	—	—
Total distributions	(0.22)	(1.06)	(0.38)	—	—
Net asset value at end of period	$20.19	$16.22	$17.42	$18.02	$17.28
Total return	25.89%	(0.64%)	(1.18%)	4.28%	31.51%
Ratios/Supplemental Data
Ratios to average net assets:
Net operating expenses	1.35%	1.35%	1.35%	1.35%	1.35%
Gross operating expenses	1.56%	1.56%	1.55%	1.56%	1.59%
Net investment income (loss)	0.01%	0.04%	(0.26%)	(0.26%)	(0.16%)
Portfolio turnover rate	106%	85%	51%	79%	97%
Net assets, end of period (x 1,000,000)	$65	$55	$62	$70	$76

Select Shares	11/1/16– 10/31/17	11/1/15– 10/31/16	11/1/14– 10/31/15	11/1/13– 10/31/14	11/1/12– 10/31/13
Per-Share Data
Net asset value at beginning of period	$16.55	$17.73	$18.33	$17.56	$13.33
Income (loss) from investment operations:
Net investment income (loss)¹	0.03	0.03	(0.02)	(0.02)	(0.00) ²
Net realized and unrealized gains (losses)	4.26	(0.15)	(0.17) ³	0.79	4.23
Total from investment operations	4.29	(0.12)	(0.19)	0.77	4.23
Less distributions:
Distributions from net investment income	(0.05)	—	(0.06)	—	—
Distributions from net realized gains	(0.19)	(1.06)	(0.35)	—	—
Total distributions	(0.24)	(1.06)	(0.41)	—	—
Net asset value at end of period	$20.60	$16.55	$17.73	$18.33	$17.56
Total return	26.02%	(0.50%)	(0.99%)	4.39%	31.73%
Ratios/Supplemental Data
Ratios to average net assets:
Net operating expenses	1.20%	1.20%	1.20%	1.20%	1.20%
Gross operating expenses	1.51%	1.52%	1.51%	1.51%	1.53%
Net investment income (loss)	0.15%	0.19%	(0.09%)	(0.13%)	(0.03%)
Portfolio turnover rate	106%	85%	51%	79%	97%
Net assets, end of period (x 1,000,000)	$122	$98	$107	$122	$113

Calculated based on the average shares outstanding during the period.

Per-share amount was less than $0.005.

The per share amount does not accord with the change in aggregate gains and losses in securities during the period because of the timing of sales and repurchases of fund shares in relation to fluctuating market values.

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Table of Contents

Laudus Small-Cap MarketMasters Fund

Portfolio Holdings as of October 31, 2017

This section shows all the securities in the fund's portfolio and their values as of the report date.

The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at www.sec.gov and may be viewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The fund also makes available its complete schedule of portfolio holdings 15-20 days after calendar quarters on the fund's website at www.schwabfunds.com/laudusfunds_prospectus.

Security	Number of Shares	Value ($)
Common Stock 93.2% of net assets

Automobiles & Components 0.6%
Dana, Inc.	25,356	773,105
Visteon Corp. *	3,159	398,160
		1,171,265

Banks 10.2%
1st Source Corp.	12,870	660,360
Banc of California, Inc.	31,920	671,916
Banner Corp.	10,103	579,104
FCB Financial Holdings, Inc., Class A *	10,930	510,431
First Busey Corp.	32,368	1,007,292
First Interstate BancSystem, Inc., Class A	14,850	583,605
First Midwest Bancorp, Inc.	73,839	1,704,943
Flushing Financial Corp.	34,395	1,031,162
Great Western Bancorp, Inc.	54,127	2,197,015
Hancock Holding Co.	33,295	1,623,131
Home BancShares, Inc.	34,550	776,684
International Bancshares Corp.	29,128	1,182,597
KeyCorp	20,275	370,019
MB Financial, Inc.	33,125	1,521,762
MGIC Investment Corp. *	106,329	1,520,505
Northwest Bancshares, Inc.	91,889	1,550,167
Pinnacle Financial Partners, Inc.	5,156	341,327
SVB Financial Group *	2,666	584,600
Texas Capital Bancshares, Inc. *	6,760	581,698
		18,998,318

Capital Goods 11.3%
Actuant Corp., Class A	24,223	617,686
Albany International Corp., Class A	25,022	1,510,078
Astronics Corp. *	8,220	282,768
Beacon Roofing Supply, Inc. *	13,328	738,504
CIRCOR International, Inc.	23,128	1,016,476
Cubic Corp.	31,444	1,715,270
Curtiss-Wright Corp.	6,448	762,476
EMCOR Group, Inc.	9,648	776,760
EnPro Industries, Inc.	6,992	585,510
ESCO Technologies, Inc.	21,484	1,244,998
GATX Corp.	15,121	898,339
Granite Construction, Inc.	12,101	770,713
Lindsay Corp.	7,025	643,209
Luxfer Holdings plc ADR	49,561	613,565
Mueller Industries, Inc.	54,972	1,910,277
Primoris Services Corp.	31,245	883,296
Regal Beloit Corp.	6,214	504,266
Simpson Manufacturing Co., Inc.	12,144	676,907
Teledyne Technologies, Inc. *	3,043	517,188
Tennant Co.	3,705	256,942
Thermon Group Holdings, Inc. *	50,302	1,081,996
TriMas Corp. *	67,352	1,788,196
Watts Water Technologies, Inc., Class A	8,536	575,326
Woodward, Inc.	9,805	758,221
		21,128,967

Security	Number of Shares	Value ($)
Commercial & Professional Services 6.7%
ACCO Brands Corp. *	81,142	1,058,903
Deluxe Corp.	5,360	373,324
Essendant, Inc.	34,314	332,159
Exponent, Inc.	1,321	97,556
Forrester Research, Inc.	30,107	1,315,676
FTI Consulting, Inc. *	32,784	1,401,516
Healthcare Services Group, Inc.	12,204	645,470
Huron Consulting Group, Inc. *	20,676	756,742
ICF International, Inc. *	11,730	629,901
Knoll, Inc.	27,719	588,197
Korn/Ferry International	9,865	412,653
Matthews International Corp., Class A	26,878	1,689,282
Mistras Group, Inc. *	35,380	743,334
Nielsen Holdings plc	5,780	214,265
SP Plus Corp. *	23,870	924,962
Steelcase, Inc., Class A	38,345	557,920
The Brink's Co.	10,505	799,430
		12,541,290

Consumer Durables & Apparel 2.0%
American Outdoor Brands Corp. *	23,160	331,883
CalAtlantic Group, Inc.	3,548	175,058
G-III Apparel Group Ltd. *	30,312	768,106
Helen of Troy Ltd. *	4,720	438,488
Nautilus, Inc. *	19,439	252,707
Sturm, Ruger & Co., Inc.	5,845	289,620
TRI Pointe Group, Inc. *	52,900	935,801
Universal Electronics, Inc. *	10,310	618,600
		3,810,263

Consumer Services 3.2%
Boyd Gaming Corp.	20,385	595,854
Bright Horizons Family Solutions, Inc. *	5,597	483,021
Dave & Buster's Entertainment, Inc. *	12,840	618,888
Del Taco Restaurants, Inc. *	20,545	260,716
Eldorado Resorts, Inc. *	9,035	232,199
Extended Stay America, Inc.	29,281	580,349
Jack in the Box, Inc.	6,258	647,766
Penn National Gaming, Inc. *	14,774	385,454
Planet Fitness, Inc., Class A	53,950	1,437,228
Sotheby's *	15,090	781,964
		6,023,439

Diversified Financials 3.7%
Ally Financial, Inc.	37,476	979,248
ETRADE Financial Corp.	9,078	395,710
Eaton Vance Corp.	9,751	492,133
FNFV Group *	22,079	380,863
Green Dot Corp., Class A *	7,099	401,945
Houlihan Lokey, Inc.	12,162	506,304
Ladder Capital Corp.	1	13
Leucadia National Corp.	34,399	870,295
Moelis & Co., Class A	10,655	455,501
OM Asset Management plc	30,120	460,234

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Table of Contents

Laudus Small-Cap MarketMasters Fund

Portfolio Holdings as of October 31, 2017 (continued)

Security	Number of Shares	Value ($)
Raymond James Financial, Inc.	4,412	374,049
SLM Corp. *	92,795	982,699
Solar Capital Ltd.	25,990	551,248
		6,850,242

Energy 2.7%
Arch Coal, Inc., Class A	8,498	649,417
Cabot Oil & Gas Corp.	3,272	90,634
Carrizo Oil & Gas, Inc. *	21,178	374,639
Dorian LPG Ltd. *	44,110	315,386
Dril-Quip, Inc. *	3,544	149,202
Era Group, Inc. *	29,256	314,795
Oasis Petroleum, Inc. *	37,088	350,482
Resolute Energy Corp. *	16,810	504,804
Scorpio Tankers, Inc.	170,897	608,393
SEACOR Holdings, Inc. *	16,744	790,317
SEACOR Marine Holdings, Inc. *	20,814	294,518
Tesco Corp. *	31,370	120,775
Unit Corp. *	11,337	212,229
US Silica Holdings, Inc.	10,200	311,202
		5,086,793

Food & Staples Retailing 0.5%
Smart & Final Stores, Inc. *	94,090	564,540
U.S. Foods Holding Corp. *	10,640	290,259
		854,799

Food, Beverage & Tobacco 0.4%
Blue Buffalo Pet Products, Inc. *	9,550	276,282
Vector Group Ltd.	17,903	372,024
		648,306

Health Care Equipment & Services 7.2%
Allscripts Healthcare Solutions, Inc. *	93,145	1,255,595
Amedisys, Inc. *	14,445	694,949
AMN Healthcare Services, Inc. *	6,100	267,790
Brookdale Senior Living, Inc. *	92,499	927,765
Chemed Corp.	3,849	859,982
CorVel Corp. *	10,546	632,760
Evolent Health, Inc., Class A *	17,688	287,430
Haemonetics Corp. *	21,808	1,037,188
HealthEquity, Inc. *	14,871	746,822
HealthSouth Corp.	19,206	886,165
Hill-Rom Holdings, Inc.	6,967	562,307
ICU Medical, Inc. *	2,607	498,198
Magellan Health, Inc. *	5,680	484,504
Masimo Corp. *	4,271	374,823
Medidata Solutions, Inc. *	12,018	904,114
Merit Medical Systems, Inc. *	15,759	599,630
Natus Medical, Inc. *	16,955	718,892
NuVasive, Inc. *	11,876	673,725
Omnicell, Inc. *	7,430	370,014
Owens & Minor, Inc.	9,829	241,498
Select Medical Holdings Corp. *	25,253	483,595
		13,507,746

Insurance 1.4%
AMERISAFE, Inc.	8,392	542,962
Kemper Corp.	20,850	1,336,485
Primerica, Inc.	5,760	509,760
State National Cos., Inc.	13,791	289,887
		2,679,094

Security	Number of Shares	Value ($)
Materials 7.3%
Boise Cascade Co. *	18,668	661,781
Commercial Metals Co.	24,711	481,370
Compass Minerals International, Inc.	4,515	296,184
Deltic Timber Corp.	15,783	1,461,664
Ferroglobe Representation & Warranty Insurance *(b)	1,153	—
Goldcorp, Inc.	12,432	162,362
Greif, Inc., Class A	35,625	1,978,256
H.B. Fuller Co.	6,918	393,427
Huntsman Corp.	16,791	537,648
KapStone Paper & Packaging Corp.	21,437	481,475
Kinross Gold Corp. *	67,913	268,256
Methanex Corp.	8,070	393,413
Minerals Technologies, Inc.	7,420	533,498
Neenah Paper, Inc.	8,050	698,740
Orion Engineered Carbons S.A.	36,130	854,474
Packaging Corp. of America	5,817	676,343
PolyOne Corp.	11,112	511,930
Sensient Technologies Corp.	19,836	1,508,528
US Concrete, Inc. *	6,121	478,662
Valvoline, Inc.	20,011	480,664
Westlake Chemical Corp.	3,117	264,664
Worthington Industries, Inc.	11,700	532,350
		13,655,689

Media 1.4%
AMC Entertainment Holdings, Inc., Class A	16,700	232,130
Nexstar Media Group, Inc., Class A	19,656	1,254,053
Sinclair Broadcast Group, Inc., Class A	34,003	1,077,895
		2,564,078

Pharmaceuticals, Biotechnology & Life Sciences 6.1%
Aerie Pharmaceuticals, Inc. *	5,757	355,495
Amicus Therapeutics, Inc. *	14,135	201,282
Bluebird Bio, Inc. *	2,365	328,972
Catalent, Inc. *	18,399	783,613
Clovis Oncology, Inc. *	5,437	409,787
Dermira, Inc. *	18,533	496,128
Epizyme, Inc. *	11,146	186,138
Exact Sciences Corp. *	9,564	525,924
FibroGen, Inc. *	7,880	440,098
INC Research Holdings, Inc., Class A *	7,550	431,483
Jazz Pharmaceuticals plc *	4,195	593,718
Lexicon Pharmaceuticals, Inc. *	17,367	176,970
Loxo Oncology, Inc. *	4,154	357,909
MacroGenics, Inc. *	10,782	213,376
Pacira Pharmaceuticals, Inc. *	7,802	250,054
Phibro Animal Health Corp., Class A	1,803	67,883
Portola Pharmaceuticals, Inc. *	4,829	238,601
PRA Health Sciences, Inc. *	7,370	600,139
Prestige Brands Holdings, Inc. *	15,474	725,731
Prothena Corp. plc *	4,890	283,865
Puma Biotechnology, Inc. *	4,100	521,930
Radius Health, Inc. *	10,181	326,912
Sage Therapeutics, Inc. *	17,219	1,089,618
Sarepta Therapeutics, Inc. *	7,869	388,020
TherapeuticsMD, Inc. *	293,534	1,385,480
		11,379,126

Real Estate 3.3%
Corporate Office Properties Trust	24,777	791,129
DiamondRock Hospitality Co.	62,736	681,313
EastGroup Properties, Inc.	7,071	640,562

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Laudus MarketMasters Funds | Annual Report

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Table of Contents

Laudus Small-Cap MarketMasters Fund

Portfolio Holdings as of October 31, 2017 (continued)

Security	Number of Shares	Value ($)
Education Realty Trust, Inc.	26,117	911,483
QTS Realty Trust, Inc., Class A	10,701	619,053
Ramco-Gershenson Properties Trust	74,690	943,335
Summit Hotel Properties, Inc.	56,854	898,862
Urban Edge Properties	26,904	631,168
		6,116,905

Retailing 2.5%
At Home Group, Inc. *	19,050	390,525
Big Lots, Inc.	16,965	870,474
Camping World Holdings, Inc., Class A	15,480	650,470
Fred's, Inc., Class A	60,016	264,670
Lithia Motors, Inc., Class A	12,450	1,409,091
The Cato Corp., Class A	25,870	332,688
The Children's Place, Inc.	6,322	687,834
		4,605,752

Semiconductors & Semiconductor Equipment 2.5%
Impinj, Inc. *	9,920	338,669
Integrated Device Technology, Inc. *	24,344	756,368
Marvell Technology Group Ltd.	3,635	67,139
Maxim Integrated Products, Inc.	11,463	602,266
Microsemi Corp. *	14,764	787,955
MKS Instruments, Inc.	4,460	484,579
Monolithic Power Systems, Inc.	5,398	656,775
Power Integrations, Inc.	7,832	629,301
Teradyne, Inc.	6,997	300,101
United Microelectronics Corp. ADR	3,284	8,538
		4,631,691

Software & Services 7.8%
Acxiom Corp. *	31,910	802,856
Alteryx, Inc., Class A *	16,390	370,250
Barracuda Networks, Inc. *	14,720	343,123
Blackhawk Network Holdings, Inc. *	19,995	678,830
BroadSoft, Inc. *	2,949	161,753
CommVault Systems, Inc. *	7,105	369,815
Coupa Software, Inc. *	19,161	665,845
Ellie Mae, Inc. *	8,947	804,783
Envestnet, Inc. *	5,629	300,589
EPAM Systems, Inc. *	8,402	765,842
Euronet Worldwide, Inc. *	5,346	516,637
Fair Isaac Corp.	5,316	771,671
First Data Corp., Class A *	35,730	636,351
Five9, Inc. *	14,920	376,432
Guidewire Software, Inc. *	8,067	645,199
j2 Global, Inc.	10,717	794,558
Manhattan Associates, Inc. *	10,264	429,651
Nuance Communications, Inc. *	25,287	372,730
Proofpoint, Inc. *	7,172	662,765
PROS Holdings, Inc. *	12,177	275,078
Q2 Holdings, Inc. *	12,286	522,769
Rapid7, Inc. *	18,686	337,843
Square, Inc., Class A *	8,524	317,008
Teradata Corp. *	34,942	1,168,810
WNS Holdings Ltd. ADR *	28,260	1,071,619
Zendesk, Inc. *	11,445	354,795
		14,517,602

Technology Hardware & Equipment 7.1%
Belden, Inc.	26,250	2,097,637
CalAmp Corp. *	11,658	264,986
Ciena Corp. *	59,689	1,269,585
Cray, Inc. *	7,965	164,477

Security	Number of Shares	Value ($)
CTS Corp.	32,256	877,363
Diebold Nixdorf, Inc.	34,445	664,789
Electronics For Imaging, Inc. *	10,225	315,544
Infinera Corp. *	96,445	807,245
Littelfuse, Inc.	2,795	584,155
Lumentum Holdings, Inc. *	2,295	144,929
Methode Electronics, Inc.	13,559	635,917
NetApp, Inc.	11,414	507,010
NetScout Systems, Inc. *	16,773	476,353
Sanmina Corp. *	11,415	373,556
ScanSource, Inc. *	14,062	603,963
Universal Display Corp.	615	90,098
VeriFone Systems, Inc. *	39,481	753,297
Viavi Solutions, Inc. *	149,733	1,389,522
Xerox Corp.	34,673	1,050,939
Zebra Technologies Corp., Class A *	2,080	241,259
		13,312,624

Telecommunication Services 0.7%
Boingo Wireless, Inc. *	14,275	333,750
Cogent Communications Holdings, Inc.	9,325	502,617
Vonage Holdings Corp. *	51,215	416,378
		1,252,745

Transportation 3.8%
Allegiant Travel Co.	4,753	648,309
Avis Budget Group, Inc. *	34,380	1,418,175
Forward Air Corp.	14,779	848,906
JB Hunt Transport Services, Inc.	3,407	362,471
Knight-Swift Transportation Holdings, Inc. *	55,030	2,280,993
Saia, Inc. *	6,780	439,344
SkyWest, Inc.	9,519	448,345
Werner Enterprises, Inc.	19,045	678,954
		7,125,497

Utilities 0.8%
Dynegy, Inc. *	32,599	405,858
New Jersey Resources Corp.	10,583	470,414
Spire, Inc.	7,294	575,861
		1,452,133
Total Common Stock
(Cost $151,701,997)		173,914,364

Other Investment Companies 6.7% of net assets

Equity Funds 1.9%
iShares Russell 2000 ETF	13,583	2,027,399
iShares Russell 2000 Growth ETF	8,460	1,536,336
		3,563,735

Money Market Fund 4.8%
State Street Institutional U.S. Government Money Market Fund, Premier Class 0.96% (a)	8,952,774	8,952,774
Total Other Investment Companies
(Cost $12,205,706)		12,516,509

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Laudus MarketMasters Funds | Annual Report

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Table of Contents

Laudus Small-Cap MarketMasters Fund

Portfolio Holdings as of October 31, 2017 (continued)

Security	Number of Shares	Value ($)
Rights 0.0% of net assets

Pharmaceuticals, Biotechnology & Life Sciences 0.0%
Dyax Corp. CVR *(b)	1,269	1,409
Tobira Therapeutics, Inc. *(b)	77	464
Total Rights
(Cost $1,413)		1,873

	Number of Contracts	Notional Amount ($)	Current Value/ Unrealized Appreciation ($)
Futures Contracts
Long
Russell 2000 Index, mini, expires 12/15/17	45	3,381,075	194,801

End of Investments.

*	Non-income producing security.
(a)	The rate shown is the 7-day yield.
(b)	Fair-valued by management in accordance with procedures approved by the Board of Trustees.

ADR —	American Depositary Receipt
CVR —	Contingent Value Rights
ETF —	Exchange-traded fund

The following is a summary of the inputs used to value the fund’s investments as of October 31, 2017 (see financial note 2(a) for additional information):

Description	Quoted Prices in Active Markets for Identical Assets (Level 1)	Other Significant Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total
Assets
Common Stock¹	$160,258,675	$—	$—	$160,258,675
Materials	13,655,689	—	— ^*	13,655,689
Other Investment Companies¹	12,516,509	—	—	12,516,509
Rights ¹
Pharmaceuticals, Biotechnology & Life Sciences	—	—	1,873	1,873
Futures Contracts²	194,801	—	—	194,801
Total	$186,625,674	$—	$1,873	$186,627,547

*	Level 3 amount shown includes securities determined to have no value at October 31, 2017.
¹	As categorized in Portfolio Holdings.
²	Futures contracts are valued at unrealized appreciation or depreciation.

The fund’s policy is to recognize transfers between Level 1, Level 2 and Level 3 as of the beginning of the fiscal year. There were no transfers between Level 1, Level 2 and Level 3 for the period ended October 31, 2017. Fund investments in underlying mutual funds and ETFs are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds and ETFs, which could be Level 1, Level 2 or Level 3.

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Laudus MarketMasters Funds | Annual Report

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Table of Contents

Laudus Small-Cap MarketMasters Fund

Statement of Assets and Liabilities

As of October 31, 2017

Assets
Investments in unaffiliated issuers, at value (cost $163,909,116)		$186,432,746
Deposit with broker for futures contracts		242,500
Receivables:
Investments sold		1,107,667
Fund shares sold		203,125
Dividends		36,014
Variation margin on futures contracts		20,646
Foreign tax reclaims		936
Prepaid expenses	+	16,414
Total assets		188,060,048
Liabilities
Payables:
Investments bought		1,299,679
Investment adviser and administrator fees		137,918
Shareholder service fees		23,118
Fund shares redeemed		4,349
Accrued expenses	+	61,394
Total liabilities		1,526,458
Net Assets
Total assets		188,060,048
Total liabilities	–	1,526,458
Net assets		$186,533,590
Net Assets by Source
Capital received from investors		142,258,648
Net realized capital gains		21,556,511
Net unrealized capital appreciation		22,718,431

Net Asset Value (NAV) by Shares Class
Share Class	Net Assets	÷	Shares Outstanding	=	NAV
Investor Shares	$64,807,677		3,210,557		$20.19
Select Shares	$121,725,913		5,907,919		$20.60

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Table of Contents

Laudus Small-Cap MarketMasters Fund

Statement of Operations

For the period November 1, 2016 through October 31, 2017

Investment Income
Dividends (net of foreign withholding tax of $5,223)		$2,346,708
Interest	+	1,491
Total investment income		2,348,199
Expenses
Investment adviser and administrator fees		2,031,319
Shareholder service fees:
Investor Shares		153,271
Select Shares		219,046
Custodian fees		66,936
Professional fees		49,763
Shareholder reports		43,465
Portfolio accounting fees		41,068
Registration fees		32,457
Independent trustees’ fees		8,023
Transfer agent fees		5,393
Interest expense		93
Other expenses	+	6,699
Total expenses		2,657,533
Expense reduction by CSIM and its affiliates	–	479,316
Net expenses	–	2,178,217
Net investment income		169,982
Realized and Unrealized Gains (Losses)
Net realized gains on investments		21,695,620
Net realized gains on futures contracts	+	150,066
Net realized gains		21,845,686
Net change in unrealized appreciation (depreciation) on investments		16,873,394
Net change in unrealized appreciation (depreciation) on futures contracts	+	213,604
Net change in unrealized appreciation (depreciation)	+	17,086,998
Net realized and unrealized gains		38,932,684
Increase in net assets resulting from operations		$39,102,666

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Table of Contents

Laudus Small-Cap MarketMasters Fund

Statement of Changes in Net Assets

For the current and prior report periods

Operations
	11/1/16-10/31/17		11/1/15-10/31/16
Net investment income		$169,982	$210,511
Net realized gains		21,845,686	1,168,816
Net change in unrealized appreciation (depreciation)	+	17,086,998	(2,420,138)
Increase (decrease) in net assets from operations		39,102,666	(1,040,811)
Distributions to Shareholders
Distributions from net investment income
Investor Shares		(88,307)	—
Select Shares	+	(286,345)	—
Total distributions from net investment income		(374,652)	—
Distributions from net realized gains
Investor Shares		(624,867)	(3,793,537)
Select Shares	+	(1,055,222)	(6,231,390)
Total distributions from net realized gains		(1,680,089)	(10,024,927)
Total distributions		($2,054,741)	($10,024,927)

Transactions in Fund Shares
		11/1/16-10/31/17		11/1/15-10/31/16
		SHARES	VALUE	SHARES	VALUE
Shares Sold
Investor Shares		150,756	$2,838,923	40,792	$680,024
Select Shares	+	470,039	9,097,237	315,043	5,053,827
Total shares sold		620,795	$11,936,160	355,835	$5,733,851
Shares Reinvested
Investor Shares		33,695	$630,426	212,542	$3,368,785
Select Shares	+	68,980	1,315,446	378,685	6,115,760
Total shares reinvested		102,675	$1,945,872	591,227	$9,484,545
Shares Redeemed
Investor Shares		(361,547)	($6,831,172)	(440,313)	($7,015,212)
Select Shares	+	(552,290)	(10,492,211)	(782,174)	(13,027,787)
Total shares redeemed		(913,837)	($17,323,383)	(1,222,487)	($20,042,999)
Net transactions in fund shares		(190,367)	($3,441,351)	(275,425)	($4,824,603)
Shares Outstanding and Net Assets
		11/1/16-10/31/17		11/1/15-10/31/16
		SHARES	NET ASSETS	SHARES	NET ASSETS
Beginning of period		9,308,843	$152,927,016	9,584,268	$168,817,357
Total increase or decrease	+	(190,367)	33,606,574	(275,425)	(15,890,341)
End of period		9,118,476	$186,533,590	9,308,843	$152,927,016
Net investment income not yet distributed			$—		$205,940

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Table of Contents

Laudus International MarketMasters Fund

Financial Statements

Financial Highlights

Investor Shares	11/1/16– 10/31/17	11/1/15– 10/31/16	11/1/14– 10/31/15	11/1/13– 10/31/14	11/1/12– 10/31/13
Per-Share Data
Net asset value at beginning of period	$21.17	$22.71	$22.95	$23.68	$19.03
Income (loss) from investment operations:
Net investment income (loss)	0.18 ¹	0.17 ¹	0.18 ¹	0.25	0.23
Net realized and unrealized gains (losses)	5.78	(0.24)	(0.10)	(0.66)	4.85
Total from investment operations	5.96	(0.07)	0.08	(0.41)	5.08
Less distributions:
Distributions from net investment income	(0.15)	(0.27)	(0.32)	(0.32)	(0.43)
Distributions from net realized gains	—	(1.20)	—	—	—
Total distributions	(0.15)	(1.47)	(0.32)	(0.32)	(0.43)
Net asset value at end of period	$26.98	$21.17	$22.71	$22.95	$23.68
Total return	28.35%	(0.14%)	0.39%	(1.73%)	27.23%
Ratios/Supplemental Data
Ratios to average net assets:
Net operating expenses	1.40%	1.40%	1.40%	1.40%	1.40%
Gross operating expenses	1.61%	1.61%	1.59%	1.59%	1.60%
Net investment income (loss)	0.76%	0.81%	0.76%	1.06%	1.10%
Portfolio turnover rate	71%	69%	72%	74%	65%
Net assets, end of period (x 1,000,000)	$512	$447	$536	$631	$675

Select Shares	11/1/16– 10/31/17	11/1/15– 10/31/16	11/1/14– 10/31/15	11/1/13– 10/31/14	11/1/12– 10/31/13
Per-Share Data
Net asset value at beginning of period	$21.16	$22.71	$22.95	$23.68	$19.03
Income (loss) from investment operations:
Net investment income (loss)	0.22 ¹	0.19 ¹	0.21 ¹	0.28	0.28
Net realized and unrealized gains (losses)	5.76	(0.23)	(0.10)	(0.65)	4.83
Total from investment operations	5.98	(0.04)	0.11	(0.37)	5.11
Less distributions:
Distributions from net investment income	(0.18)	(0.31)	(0.35)	(0.36)	(0.46)
Distributions from net realized gains	—	(1.20)	—	—	—
Total distributions	(0.18)	(1.51)	(0.35)	(0.36)	(0.46)
Net asset value at end of period	$26.96	$21.16	$22.71	$22.95	$23.68
Total return	28.52%	0.00% ²	0.56%	(1.57%)	27.43%
Ratios/Supplemental Data
Ratios to average net assets:
Net operating expenses	1.25%	1.25%	1.25%	1.25%	1.25%
Gross operating expenses	1.53%	1.54%	1.50%	1.47%	1.44%
Net investment income (loss)	0.92%	0.93%	0.91%	1.20%	1.26%
Portfolio turnover rate	71%	69%	72%	74%	65%
Net assets, end of period (x 1,000,000)	$1,229	$1,063	$1,395	$1,592	$1,590

Calculated based on the average shares outstanding during the period.

Less than 0.005%.

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Table of Contents

Laudus International MarketMasters Fund

Portfolio Holdings as of October 31, 2017

This section shows all the securities in the fund's portfolio and their values as of the report date.

Security	Number of Shares	Value ($)
Common Stock 96.9% of net assets

Argentina 0.0%
Grupo Financiero Galicia S.A.	9,502	521,660

Australia 3.4%
AGL Energy Ltd.	2,729	52,837
ALS Ltd.	998,090	5,992,374
Alumina Ltd.	9,544	17,127
Amcor Ltd.	4,684	56,847
AMP Ltd.	2,073,993	7,903,997
APA Group	4,591	30,129
Aristocrat Leisure Ltd.	2,231	40,333
ASX Ltd.	809	33,472
Aurizon Holdings Ltd.	8,450	33,536
AusNet Services	8,703	11,802
Australia & New Zealand Banking Group Ltd.	12,027	276,002
Bank of Queensland Ltd.	1,590	16,277
Bendigo & Adelaide Bank Ltd.	1,903	16,598
BHP Billiton Ltd.	13,217	272,122
BlueScope Steel Ltd.	2,454	24,160
Boral Ltd.	4,665	25,598
Brambles Ltd.	6,414	46,510
Caltex Australia Ltd.	1,038	27,254
Challenger Ltd.	2,338	23,849
Charter Hall Retail REIT	1,776,835	5,527,191
CIMIC Group Ltd.	395	14,654
Coca-Cola Amatil Ltd.	2,276	14,209
Cochlear Ltd.	228	30,713
Commonwealth Bank of Australia	7,085	421,453
Computershare Ltd.	1,846	22,068
Costa Group Holdings Ltd.	1,170,883	5,571,293
Crown Resorts Ltd.	1,727	15,357
CSL Ltd.	1,876	199,721
Dexus	4,253	31,846
Domino's Pizza Enterprises Ltd.	239	8,545
Flight Centre Travel Group Ltd.	276	9,895
Fortescue Metals Group Ltd.	6,208	22,073
Goodman Group	7,301	46,812
Harvey Norman Holdings Ltd.	2,689	7,789
Healthscope Ltd.	6,723	10,099
Incitec Pivot Ltd.	6,620	19,418
Inghams Group Ltd.	1,388,997	3,778,893
Insurance Australia Group Ltd.	9,835	49,456
InvoCare Ltd.	637,210	8,284,640
James Hardie Industries plc CDI	1,776	27,116
LendLease Group	2,203	27,357
Macquarie Group Ltd.	1,334	100,637
Medibank Pvt Ltd.	10,964	25,807
Mirvac Group	14,751	27,265
National Australia Bank Ltd.	10,960	274,616
Newcrest Mining Ltd.	3,100	53,003
Northern Star Resources Ltd.	607,552	2,416,089
Orica Ltd.	383,664	6,145,201
Origin Energy Ltd. *	7,214	43,937
Pact Group Holdings Ltd.	878,905	3,901,590

Security	Number of Shares	Value ($)
Qantas Airways Ltd.	2,388	11,270
QBE Insurance Group Ltd.	5,545	45,468
Ramsay Health Care Ltd.	564	28,916
REA Group Ltd.	247	13,695
Rio Tinto Ltd.	1,753	93,411
Santos Ltd. *	8,053	27,827
Scentre Group	22,038	67,953
SEEK Ltd.	1,289	18,151
Shopping Centres Australasia Property Group	3,390,072	6,110,451
Sonic Healthcare Ltd.	1,573	26,272
South32 Ltd.	21,533	56,245
Stockland	9,898	34,306
Suncorp Group Ltd.	5,348	55,666
Sydney Airport	4,385	23,891
Tabcorp Holdings Ltd.	3,225	11,096
Tatts Group Ltd.	5,747	18,371
Telstra Corp., Ltd.	17,301	46,955
The GPT Group	7,163	27,970
TPG Telecom Ltd.	1,746	7,227
Transurban Group	8,483	78,856
Treasury Wine Estates Ltd.	2,941	35,304
Vicinity Centres	13,881	28,215
Wesfarmers Ltd.	4,662	149,328
Westfield Corp.	7,984	47,587
Westpac Banking Corp.	13,807	349,723
Woodside Petroleum Ltd.	3,139	73,996
Woolworths Ltd.	5,317	105,408
		59,623,125

Austria 0.0%
ANDRITZ AG	289	16,341
Erste Group Bank AG *	1,218	52,283
Lenzing AG	3,185	431,107
OMV AG	615	36,908
Raiffeisen Bank International AG *	588	20,448
voestalpine AG	452	24,850
		581,937

Belgium 0.5%
Ageas	802	38,893
Anheuser-Busch InBev S.A./N.V.	3,134	384,295
Colruyt S.A.	267	13,655
Galapagos N.V. *	34,980	3,401,865
Groupe Bruxelles Lambert S.A.	330	35,444
KBC Group N.V.	59,749	4,963,284
Proximus	605	20,090
Solvay S.A.	308	45,756
Telenet Group Holding N.V. *	209	14,454
UCB S.A.	516	37,563
Umicore S.A.	758	33,875
		8,989,174

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Table of Contents

Laudus International MarketMasters Fund

Portfolio Holdings as of October 31, 2017 (continued)

Security	Number of Shares	Value ($)
Brazil 0.9%
CCR S.A.	122,000	678,751
Companhia de Saneamento Basico do Estado de Sao Paulo	22,300	203,142
CVC Brasil Operadora e Agencia de Viagens S.A.	414,300	5,471,146
EcoRodovias Infraestrutura e Logistica S.A.	986,400	3,678,684
Engie Brasil Energia S.A.	33,800	369,896
Kroton Educacional S.A.	264,600	1,455,126
M Dias Branco S.A.	18,600	273,772
Magazine Luiza S.A.	153,494	2,991,240
Via Varejo S.A. *	47,100	324,962
		15,446,719

Canada 5.7%
Alamos Gold, Inc., Class A	181,453	1,149,113
Arizona Mining, Inc. *	914,152	2,295,832
BRP, Inc.	147,362	4,952,807
CAE, Inc.	687,371	12,179,909
Canadian National Railway Co.	58,532	4,709,873
CES Energy Solutions Corp.	686,963	3,700,793
Cineplex, Inc.	118,859	3,594,976
Constellation Software, Inc.	2,287	1,301,149
Dollarama, Inc.	13,024	1,449,792
Enerflex Ltd.	155,651	2,117,413
Finning International, Inc.	19,924	485,861
FirstService Corp.	61,230	4,262,512
Hudbay Minerals, Inc.	355,098	2,639,632
Innergex Renewable Energy, Inc.	354,361	3,870,201
Interfor Corp. *	223,756	3,642,257
Lundin Mining Corp.	114,551	873,717
New Flyer Industries, Inc.	85,529	3,629,066
Northview Apartment Real Estate Investment Trust	172,894	3,119,892
Parex Resources, Inc. *	279,765	3,721,237
Premium Brands Holdings Corp.	55,897	4,523,407
Ritchie Bros. Auctioneers, Inc.	190,777	5,350,215
Rogers Communications, Inc., Class B	51,600	2,677,392
Shopify, Inc., Class A *	25,966	2,583,357
Suncor Energy, Inc.	135,355	4,595,418
The Descartes Systems Group, Inc. *	182,300	5,284,877
TransAlta Renewables, Inc.	267,220	2,881,195
WSP Global, Inc.	170,585	7,645,318
		99,237,211

China 3.6%
3SBio, Inc. *	74,500	133,435
Alibaba Group Holding Ltd. ADR *	23,843	4,408,332
Anhui Conch Cement Co., Ltd., Class H	290,500	1,244,413
Baidu, Inc. ADR *	21,995	5,365,460
Baozun, Inc. ADR *	135,090	4,240,475
China Overseas Land & Investment Ltd.	600,000	1,948,210
China Resources Cement Holdings Ltd.	6,708,000	4,533,933
CSPC Pharmaceutical Group Ltd.	568,000	988,168
Ctrip.com International Ltd. ADR *	36,242	1,735,629
Industrial & Commercial Bank of China Ltd., Class H	5,739,000	4,566,321
Kingboard Laminates Holdings Ltd.	2,756,000	4,631,506
Lonking Holdings Ltd.	11,218,000	5,047,545
Microport Scientific Corp.	2,946,000	2,907,473
Nexteer Automotive Group Ltd. *	3,287,288	6,437,904
Ping An Insurance Group Co. of China Ltd., Class H	771,500	6,779,895
SINA Corp. *	7,687	827,506

Security	Number of Shares	Value ($)
Tencent Holdings Ltd.	107,700	4,840,586
Wisdom Education International Holdings Co., Ltd.	3,196,000	1,872,643
		62,509,434

Denmark 1.2%
Ambu A/S, Class B	29,003	2,673,258
AP Moeller - Maersk A/S, Series A	15	27,803
AP Moeller - Maersk A/S, Series B	27	51,759
Carlsberg A/S, Class B	436	49,809
Chr. Hansen Holding A/S	13,321	1,165,718
Coloplast A/S, Class B	497	43,745
Danske Bank A/S	3,037	115,902
DSV A/S	51,275	3,964,886
Genmab A/S *	2,877	580,968
H. Lundbeck A/S	301	17,894
ISS A/S	689	29,178
Novo Nordisk A/S, Class B	108,481	5,401,141
Novozymes A/S, B Shares	963	53,208
Orsted A/S	36,086	2,022,144
Pandora A/S	449	42,398
TDC A/S	3,194	18,884
Topdanmark A/S *	116,972	4,808,571
Tryg A/S	544	12,959
Vestas Wind Systems A/S	916	80,869
William Demant Holding A/S *	486	14,026
		21,175,120

Finland 0.2%
Elisa Oyj	565	22,751
Fortum Oyj	1,770	37,567
Huhtamaki Oyj	10,957	466,711
Kone Oyj, Class B	1,397	75,611
Metso Oyj	439	15,944
Neste Oyj	509	28,337
Nokia Oyj	24,056	118,306
Nokian Renkaat Oyj	11,685	535,724
Orion Oyj, Class B	421	17,255
Sampo Oyj, A Shares	1,847	96,653
Stora Enso Oyj, R Shares	2,194	34,288
Terveystalo Oyj *	209,666	2,515,562
UPM-Kymmene Oyj	2,158	64,810
Wartsila Oyj Abp	616	39,680
		4,069,199

France 10.7%
Accor S.A.	775	38,663
Aeroports de Paris	118	19,867
Air Liquide S.A.	1,762	224,345
Airbus SE	2,388	245,045
Alstom S.A.	610	24,678
Alten S.A.	46,586	4,077,038
Arkema S.A.	28,860	3,645,922
Atos SE	17,593	2,732,469
AXA S.A.	7,987	241,115
BNP Paribas S.A.	305,210	23,821,463
Boiron S.A.	44,600	4,026,302
Bollore S.A. *	17	81
Bollore S.A.	3,491	16,864
Bouygues S.A.	887	42,570
Bureau Veritas S.A.	259,156	6,939,749
Capgemini SE	662	80,422
Carrefour S.A.	2,361	47,516
Casino Guichard Perrachon S.A.	222	12,676
CNP Assurances	680	15,818

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Table of Contents

Laudus International MarketMasters Fund

Portfolio Holdings as of October 31, 2017 (continued)

Security	Number of Shares	Value ($)
Compagnie de Saint-Gobain	2,062	120,901
Compagnie Generale des Etablissements Michelin	32,128	4,650,411
Credit Agricole S.A.	4,711	82,222
Danone S.A.	67,255	5,496,828
Dassault Aviation S.A.	11	17,151
Dassault Systemes S.A.	521	55,307
Edenred	945	27,243
Eiffage S.A.	292	30,501
Electricite de France S.A.	2,331	30,508
Elior Group S.A.	169,462	4,812,422
Engie S.A.	7,452	125,953
Essilor International S.A.	857	108,499
Eurazeo S.A.	193	17,943
Eurofins Scientific SE	2,811	1,758,438
Eutelsat Communications S.A.	709	17,759
Fonciere Des Regions	131	13,340
Gecina S.A.	197	31,966
Groupe Eurotunnel SE	1,859	23,365
Hermes International	3,603	1,870,345
ICADE	146	12,755
Iliad S.A.	105	26,210
Imerys S.A.	145	13,203
Ingenico Group S.A.	57,032	5,538,284
Ipsen S.A.	3,786	457,756
JCDecaux S.A.	359	13,733
Kering	10,820	4,962,109
Klepierre S.A.	918	36,544
Korian S.A.	187,788	6,102,771
L'Oreal S.A.	1,037	230,798
Lagardere S.C.A.	457	15,050
Legrand S.A.	1,106	82,077
LISI	101,545	4,661,277
LVMH Moet Hennessy Louis Vuitton SE	5,917	1,764,823
Maisons du Monde S.A.	124,179	5,373,742
Natixis S.A.	3,811	29,886
Nexity S.A. *	7,791	478,852
Orange S.A.	8,228	135,167
Orpea	8,510	1,019,573
Pernod-Ricard S.A.	35,165	5,272,778
Peugeot S.A.	1,983	47,048
Publicis Groupe S.A.	147,938	9,629,700
Remy Cointreau S.A.	92	11,949
Renault S.A.	720	71,406
Rexel S.A.	1,203	21,452
Rubis SCA	274,901	17,250,756
Safran S.A.	69,487	7,318,529
Sanofi	14,265	1,350,704
Schneider Electric SE *	2,318	203,662
SCOR SE	731	30,346
SEB S.A.	2,993	557,762
SES S.A.	1,500	24,396
Societe BIC S.A.	114	12,037
Societe Generale S.A.	3,161	175,924
Sodexo S.A.	373	47,454
SOITEC *	32,997	2,596,704
Solutions 30 SE *	108,232	3,378,783
STMicroelectronics N.V.	2,602	61,255
Suez	1,556	27,365
Teleperformance	57,375	8,379,279
Thales S.A.	26,683	2,780,727
TOTAL S.A.	105,066	5,856,178
Trigano S.A.	7,749	1,250,474
Valeo S.A.	155,401	10,521,293
Veolia Environnement S.A.	94,678	2,242,978
Vinci S.A.	45,580	4,465,817
Vivendi S.A.	4,253	105,610
Wendel S.A.	112	18,890

Security	Number of Shares	Value ($)
Worldline S.A. *	124,295	6,080,245
Zodiac Aerospace	815	23,295
		186,313,111

Georgia 0.0%
BGEO Group plc	11,439	540,185

Germany 10.0%
adidas AG	11,394	2,536,111
Aixtron SE *	308,771	4,820,083
Allianz SE	71,810	16,764,677
Aurelius Equity Opportunities SE & Co. KGaA	45,850	2,818,278
Axel Springer SE	220	14,813
BASF SE	3,778	413,137
Bayer AG	3,401	442,398
Bayerische Motoren Werke AG	182,966	18,765,036
Bechtle AG	7,578	606,512
Beiersdorf AG	420	47,246
Brenntag AG	635	36,027
Carl Zeiss Meditec AG, Class B	77,696	4,143,002
Commerzbank AG *	4,307	59,687
Continental AG	45,138	11,487,354
Covestro AG	15,351	1,475,685
CTS Eventim AG & Co. KGaA	53,513	2,213,430
Daimler AG	269,462	22,496,344
Deutsche Bank AG	8,528	139,767
Deutsche Boerse AG	799	82,748
Deutsche Lufthansa AG	952	30,586
Deutsche Post AG	3,993	183,039
Deutsche Telekom AG	13,476	244,014
Deutsche Wohnen SE	1,442	61,718
Duerr AG	78,744	10,897,361
E.ON SE	8,974	106,292
Evonik Industries AG	649	23,608
Fielmann AG	94,799	8,329,800
Fraport AG Frankfurt Airport Services Worldwide	169	16,059
Fresenius Medical Care AG & Co. KGaA	889	86,075
Fresenius SE & Co. KGaA	1,706	142,820
GEA Group AG	753	36,376
Gerresheimer AG	39,915	3,192,650
Hannover Rueck SE	253	31,838
HeidelbergCement AG	602	61,602
Henkel AG & Co. KGaA	420	52,972
HOCHTIEF AG	83	14,661
Hugo Boss AG	262	23,433
Infineon Technologies AG	131,110	3,626,243
Innogy SE	552	25,671
JOST Werke AG *	79,554	3,638,626
K&S AG	751	18,258
KION Group AG	10,055	805,684
LANXESS AG	364	28,541
Linde AG	766	165,438
MAN SE	140	15,502
Merck KGaA	522	56,007
METRO AG *	710	13,459
MorphoSys AG *	59,520	5,165,696
MTU Aero Engines AG	71,436	12,088,507
Muenchener Rueckversicherungs-Gesellschaft AG	638	143,232
Nemetschek SE	20,913	1,869,857
Norma Group SE	69,834	4,759,446
OSRAM Licht AG	367	28,101
ProSiebenSat.1 Media SE	950	33,463
QIAGEN N.V. *	95,769	3,249,125

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Table of Contents

Laudus International MarketMasters Fund

Portfolio Holdings as of October 31, 2017 (continued)

Security	Number of Shares	Value ($)
Rational AG	5,444	3,591,835
Rheinmetall AG	42,618	5,061,670
RTL Group S.A.	157	11,665
RWE AG *	2,164	54,411
SAP SE	36,718	4,195,489
Siemens AG	3,146	451,869
Stabilus S.A.	71,108	6,493,875
Symrise AG	507	39,509
Telefonica Deutschland Holding AG	3,020	15,405
ThyssenKrupp AG	1,778	47,697
United Internet AG	515	32,661
Volkswagen AG	129	24,090
Vonovia SE	79,670	3,519,299
Washtec AG	2,960	262,165
Wirecard AG	11,439	1,136,466
Zalando SE *	440	22,150
		173,588,351

Hong Kong 1.4%
AIA Group Ltd.	485,000	3,654,707
ASM Pacific Technology Ltd.	157,800	2,302,374
BOC Hong Kong (Holdings) Ltd.	15,500	73,860
China High Precision Automation Group Ltd. *(d)	766,000	—
CK Asset Holdings Ltd.	10,538	86,726
CK Hutchison Holdings Ltd.	11,038	140,201
CK Infrastructure Holdings Ltd.	2,574	22,412
CLP Holdings Ltd.	7,000	71,246
First Pacific Co., Ltd.	10,000	7,614
Galaxy Entertainment Group Ltd.	510,000	3,477,882
Hang Lung Group Ltd.	4,000	14,055
Hang Lung Properties Ltd.	8,000	18,370
Hang Seng Bank Ltd.	3,100	73,479
Henderson Land Development Co., Ltd.	5,098	33,269
HK Electric Investments & HK Electric Investments Ltd.	13,000	11,965
HKBN Ltd.	2,530,983	2,569,886
HKT Trust & HKT Ltd.	15,120	18,470
Hong Kong & China Gas Co., Ltd.	34,217	64,863
Hong Kong Exchanges & Clearing Ltd.	4,800	133,748
Hongkong Land Holdings Ltd.	4,900	35,539
Hysan Development Co., Ltd.	3,000	14,495
I-CABLE Communications Ltd. *	762	24
Kerry Properties Ltd.	3,000	13,501
Li & Fung Ltd.	28,000	14,112
Link REIT	9,000	75,666
Luk Fook Holdings International Ltd.	618,000	2,614,146
Melco International Development Ltd.	1,661,000	4,552,248
Melco Resorts & Entertainment Ltd. ADR	37,255	941,806
MGM China Holdings Ltd.	4,000	9,024
MTR Corp., Ltd.	6,000	34,785
New World Development Co., Ltd.	25,000	37,273
NWS Holdings Ltd.	7,572	15,326
PCCW Ltd.	17,000	9,373
Power Assets Holdings Ltd.	5,500	47,680
Sands China Ltd.	10,000	47,176
Shangri-La Asia Ltd.	6,000	11,946
Sino Land Co., Ltd.	14,000	24,130
SJM Holdings Ltd.	8,683	7,465
Skyworth Digital Holdings Ltd.	1,834,000	844,589
Sun Hung Kai Properties Ltd.	5,702	93,281
Sunny Optical Technology Group Co., Ltd.	119,000	1,745,424
Swire Pacific Ltd., Class A	2,000	19,764
Swire Properties Ltd.	4,800	16,220
Techtronic Industries Co., Ltd.	5,500	32,286
The Bank of East Asia Ltd.	4,800	21,062
The Wharf Holdings Ltd.	5,349	48,720

Security	Number of Shares	Value ($)
WH Group Ltd.	33,500	33,948
Wheelock & Co., Ltd.	3,000	20,899
Wynn Macau Ltd.	6,400	16,431
Yue Yuen Industrial Holdings Ltd.	3,000	11,492
		24,184,958

Hungary 0.1%
MOL Hungarian Oil & Gas plc	96,184	1,151,869

India 2.5%
Adani Ports & Special Economic Zone Ltd.	81,811	544,077
Axis Bank Ltd.	956,100	7,728,774
Bharat Electronics Ltd.	190,815	544,400
Bharti Infratel Ltd.	77,217	527,878
Britannia Industries Ltd.	16,883	1,210,054
Eicher Motors Ltd.	1,841	916,967
Future Retail Ltd. *	402,166	3,236,685
HDFC Bank Ltd.	75,486	2,109,858
Hindustan Zinc Ltd.	106,532	519,121
Indiabulls Housing Finance Ltd.	263,021	5,056,779
IndusInd Bank Ltd.	42,836	1,076,639
Infosys Ltd.	14,800	210,723
Infosys Ltd. ADR	297,900	4,423,815
Makemytrip Ltd. *	14,267	389,489
Maruti Suzuki India Ltd.	18,538	2,351,755
Motherson Sumi Systems Ltd.	128,572	725,596
UPL Ltd.	48,413	598,230
Vakrangee Ltd.	1,049,387	9,116,306
Voltas Ltd.	98,006	859,362
Yes Bank Ltd.	276,346	1,343,266
		43,489,774

Indonesia 1.0%
PT Bank Central Asia Tbk	2,303,300	3,548,097
PT Bank Mandiri (Persero) Tbk	18,294,000	9,501,938
PT Bank Tabungan Negara (Persero) Tbk	22,349,500	4,548,093
		17,598,128

Ireland 0.6%
Bank of Ireland Group plc *	4,431	34,726
CRH plc	3,437	129,341
DCC plc	365	34,614
Glanbia plc	332,863	6,432,529
ICON plc *	7,615	905,119
Kerry Group plc, Class A	641	64,549
Kingspan Group plc	14,232	595,155
Paddy Power Betfair plc	328	33,546
Shire plc	3,709	182,689
Smurfit Kappa Group plc	38,092	1,136,131
		9,548,399

Israel 0.3%
Azrieli Group Ltd.	173	9,774
Bank Hapoalim B.M.	4,312	30,530
Bank Leumi Le-Israel B.M.	5,857	32,376
Bezeq The Israeli Telecommunication Corp., Ltd.	8,089	12,079
Check Point Software Technologies Ltd. *	31,985	3,764,954
Elbit Systems Ltd.	91	13,506
Frutarom Industries Ltd.	6,361	523,849
Israel Chemicals Ltd.	2,525	10,529
Mizrahi Tefahot Bank Ltd.	574	10,363
Nice Ltd.	236	19,642

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Table of Contents

Laudus International MarketMasters Fund

Portfolio Holdings as of October 31, 2017 (continued)

Security	Number of Shares	Value ($)
Taro Pharmaceutical Industries Ltd. *	50	5,621
Teva Pharmaceutical Industries Ltd. ADR	3,767	51,985
Wix.com Ltd. *	6,488	452,862
		4,938,070

Italy 3.8%
Amplifon S.p.A.	237,551	3,608,472
Anima Holding S.p.A.	69,167	525,923
Assicurazioni Generali S.p.A.	5,155	93,820
Atlantia S.p.A.	1,884	61,420
Azimut Holding S.p.A.	10,394	205,171
Banca Generali S.p.A.	43,418	1,428,497
Brembo S.p.A.	34,847	575,250
Buzzi Unicem S.p.A.	132,668	3,693,448
Davide Campari-Milano S.p.A.	709,201	5,678,396
Enel S.p.A.	610,126	3,783,800
Eni S.p.A.	10,484	171,393
EXOR N.V.	143,331	9,188,393
Ferrari N.V.	15,579	1,865,396
Fiat Chrysler Automobiles N.V. *	4,460	77,119
FinecoBank Banca Fineco S.p.A.	988,394	9,244,432
Gima TT S.p.A. *	120,800	2,396,356
Interpump Group S.p.A.	19,100	642,885
Intesa Sanpaolo S.p.A.	4,393,556	14,770,707
Leonardo S.p.A.	1,611	27,809
Luxottica Group S.p.A.	709	40,666
Mediobanca S.p.A.	2,293	25,118
Moncler S.p.A.	199,103	5,652,251
Poste Italiane S.p.A	2,071	15,138
Prysmian S.p.A.	876	30,143
Recordati S.p.A.	23,105	1,074,132
Saipem S.p.A. *	3,073	12,918
Snam S.p.A.	9,230	47,127
Telecom Italia S.p.A. *	46,380	40,132
Tenaris S.A.	1,883	25,705
Terna - Rete Elettrica Nationale S.p.A.	6,006	36,240
UniCredit S.p.A. *	8,224	157,166
UnipolSai Assicurazioni S.p.A.	4,029	9,168
		65,204,591

Japan 14.1%
ABC-Mart, Inc.	100	5,044
Acom Co., Ltd. *	2,000	8,315
Aeon Co., Ltd.	2,500	38,669
AEON Financial Service Co., Ltd.	500	10,738
Aeon Mall Co., Ltd.	500	8,941
Air Water, Inc.	578	11,093
Aisin Seiki Co., Ltd.	700	36,262
Ajinomoto Co., Inc.	2,178	43,814
Alfresa Holdings Corp.	800	15,286
Alps Electric Co., Ltd.	800	24,483
Amada Holdings Co., Ltd.	1,326	16,477
ANA Holdings, Inc.	440	16,911
Anritsu Corp.	290,100	2,731,608
Aozora Bank Ltd.	500	19,571
Ariake Japan Co., Ltd.	62,800	4,800,113
Asahi Glass Co., Ltd.	800	31,352
Asahi Group Holdings Ltd.	78,400	3,579,616
Asahi Intecc Co., Ltd.	43,100	2,486,575
Asahi Kasei Corp.	235,463	2,851,392
Asics Corp.	600	9,172
Astellas Pharma, Inc.	8,500	113,125
Bandai Namco Holdings, Inc.	41,500	1,422,124
Benesse Holdings, Inc.	300	10,170
Bridgestone Corp.	2,700	128,980
Brother Industries Ltd.	1,000	24,333

Security	Number of Shares	Value ($)
Calbee, Inc.	300	10,125
Canon, Inc.	4,365	163,980
Casio Computer Co., Ltd.	836	12,336
Central Japan Railway Co.	600	108,988
Chubu Electric Power Co., Inc.	2,631	33,931
Chugai Pharmaceutical Co., Ltd.	900	42,909
Coca-Cola Bottlers Japan, Inc.	500	17,495
Concordia Financial Group Ltd.	5,100	27,010
Cosmos Pharmaceutical Corp.	20,900	4,351,447
Credit Saison Co., Ltd.	711	14,316
CYBERDYNE, Inc. *	500	6,624
Dai Nippon Printing Co., Ltd.	1,000	23,970
Dai-ichi Life Holdings, Inc.	4,400	84,031
Daicel Corp.	1,100	13,734
Daifuku Co., Ltd.	49,700	2,423,292
Daiichi Sankyo Co., Ltd.	2,300	52,828
Daikin Industries Ltd.	39,700	4,387,279
Daito Trust Construction Co., Ltd.	300	52,450
Daiwa House Industry Co., Ltd.	2,300	84,302
Daiwa House REIT Investment Corp.	6	14,021
Daiwa Securities Group, Inc.	457,800	2,870,259
Dena Co., Ltd.	400	9,407
Denka Co., Ltd.	107,100	3,578,251
Denso Corp.	2,000	110,148
Dentsu, Inc.	900	38,497
Disco Corp.	100	23,173
DMG Mori Co., Ltd.	257,400	5,190,619
Don Quijote Holdings Co., Ltd.	500	20,972
East Japan Railway Co.	1,338	129,759
Eisai Co., Ltd.	1,100	61,222
Electric Power Development Co., Ltd.	600	15,121
F.C.C. Co., Ltd.	123,500	2,981,679
FamilyMart UNY Holdings Co., Ltd.	300	17,051
FANUC Corp.	17,899	4,185,214
Fast Retailing Co., Ltd.	230	76,952
Fuji Electric Co., Ltd.	2,000	14,490
FUJIFILM Holdings Corp.	1,700	69,543
Fujitsu Ltd.	8,000	62,340
Fukuoka Financial Group, Inc.	3,000	15,484
GMO Payment Gateway, Inc.	55,200	4,038,803
H.I.S. Co., Ltd.	72,300	2,420,976
Hakuhodo DY Holdings, Inc.	900	12,450
Hamamatsu Photonics K.K.	600	19,427
Hankyu Hanshin Holdings, Inc.	1,000	38,987
Hikari Tsushin, Inc.	100	12,946
Hino Motors Ltd.	1,100	14,158
Hirose Electric Co., Ltd.	100	15,044
Hisamitsu Pharmaceutical Co., Inc.	300	16,518
Hitachi Chemical Co., Ltd.	25,000	712,895
Hitachi Construction Machinery Co., Ltd.	400	13,722
Hitachi High-Technologies Corp.	300	12,555
Hitachi Ltd.	20,322	161,831
Hitachi Metals Ltd.	1,000	12,955
Hogy Medical Co., Ltd.	68,300	4,677,516
Honda Motor Co., Ltd.	7,107	222,712
Hoshizaki Corp.	5,600	529,949
Hosiden Corp.	245,200	4,233,365
Hoya Corp.	73,800	4,009,608
Hulic Co., Ltd.	1,200	12,379
Idemitsu Kosan Co., Ltd.	600	17,538
IHI Corp.	600	21,611
Iida Group Holdings Co., Ltd.	713	13,678
Inpex Corp.	3,800	40,687
Investors Cloud Co., Ltd.	85,600	5,220,160
Isetan Mitsukoshi Holdings Ltd.	1,321	14,400
Isuzu Motors Ltd.	2,200	32,132
ITOCHU Corp.	6,129	107,359
Itochu Techno-Solutions Corp.	121,700	4,740,476

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Table of Contents

Laudus International MarketMasters Fund

Portfolio Holdings as of October 31, 2017 (continued)

Security	Number of Shares	Value ($)
Izumi Co., Ltd.	8,400	435,606
J. Front Retailing Co., Ltd.	1,000	14,842
Japan Airlines Co., Ltd.	500	17,114
Japan Airport Terminal Co., Ltd.	200	7,109
Japan Aviation Electronics Industry Ltd.	11,000	201,219
Japan Exchange Group, Inc.	2,100	37,860
Japan Post Bank Co., Ltd.	1,700	21,530
Japan Post Holdings Co., Ltd.	6,200	71,724
Japan Prime Realty Investment Corp.	3	9,643
Japan Real Estate Investment Corp.	5	23,441
Japan Retail Fund Investment Corp.	10	17,747
Japan Tobacco, Inc.	4,500	148,951
JFE Holdings, Inc.	2,100	45,132
JGC Corp.	800	13,418
JSR Corp.	900	17,446
JTEKT Corp.	900	14,913
JXTG Holdings, Inc.	12,485	64,470
Kajima Corp.	4,000	41,486
Kakaku.com, Inc.	600	8,239
Kamigumi Co., Ltd.	500	11,969
Kaneka Corp.	1,337	11,041
Kansai Paint Co., Ltd.	873	22,439
Kao Corp.	2,000	120,870
Kawasaki Heavy Industries Ltd.	600	20,933
KDDI Corp.	7,500	199,820
Keihan Holdings Co., Ltd.	425	12,986
Keikyu Corp.	1,000	20,686
Keio Corp.	400	17,451
Keisei Electric Railway Co., Ltd.	533	16,101
Keyence Corp.	7,300	4,053,141
Kikkoman Corp.	614	21,073
Kintetsu Group Holdings Co., Ltd.	700	26,917
Kirin Holdings Co., Ltd.	3,500	84,014
Kobe Steel Ltd. *	1,400	11,820
Koito Manufacturing Co., Ltd.	22,585	1,514,419
Komatsu Ltd.	30,900	1,009,681
Konami Holdings Corp.	400	19,482
Konica Minolta, Inc.	1,800	15,791
Kose Corp.	4,800	583,741
Kubota Corp.	4,300	80,907
Kuraray Co., Ltd.	1,400	27,572
Kurita Water Industries Ltd.	400	12,710
Kyocera Corp.	1,300	86,954
Kyowa Hakko Kirin Co., Ltd.	1,100	20,305
Kyushu Electric Power Co., Inc.	1,700	19,390
Kyushu Financial Group, Inc.	1,300	8,263
Kyushu Railway Co.	683	21,830
Lawson, Inc.	229	14,953
LINE Corp. *	200	8,284
LINE Corp. ADR *	13,408	556,566
Lion Corp.	1,000	19,243
LIXIL Group Corp.	1,100	30,295
M3, Inc.	900	26,844
Mabuchi Motor Co., Ltd.	200	10,495
Makita Corp.	900	37,718
Marubeni Corp.	6,645	44,555
Marui Group Co., Ltd.	800	12,244
Maruichi Steel Tube Ltd.	200	6,110
Maxell Holdings Ltd.	198,500	4,511,110
Mazda Motor Corp.	2,300	33,202
McDonald's Holdings Co., Ltd.	300	12,880
Mebuki Financial Group, Inc.	4,210	17,564
Medipal Holdings Corp.	800	14,857
MEIJI Holdings Co., Ltd.	500	40,875
Minebea Mitsumi, Inc.	34,587	634,087
Miraca Holdings, Inc.	200	9,305
MISUMI Group, Inc.	233,930	6,409,105
Mitsubishi Chemical Holdings Corp.	5,800	60,583

Security	Number of Shares	Value ($)
Mitsubishi Corp.	6,149	143,997
Mitsubishi Electric Corp.	7,900	135,197
Mitsubishi Estate Co., Ltd.	5,087	92,250
Mitsubishi Gas Chemical Co., Inc.	700	17,124
Mitsubishi Heavy Industries Ltd.	1,300	50,865
Mitsubishi Materials Corp.	504	19,164
Mitsubishi Motors Corp.	2,700	21,621
Mitsubishi Tanabe Pharma Corp.	900	19,808
Mitsubishi UFJ Financial Group, Inc.	758,200	5,142,978
Mitsubishi UFJ Lease & Finance Co., Ltd.	2,200	11,607
Mitsui & Co., Ltd.	7,000	104,540
Mitsui Chemicals, Inc.	800	24,669
Mitsui Fudosan Co., Ltd.	3,600	84,027
Mitsui Mining & Smelting Co., Ltd.	14,785	769,340
Mitsui O.S.K. Lines Ltd.	500	15,311
Mixi, Inc.	201	9,799
Mizuho Financial Group, Inc.	98,600	179,144
MS&AD Insurance Group Holdings, Inc.	1,910	64,887
Murata Manufacturing Co., Ltd.	824	129,501
Musashi Seimitsu Industry Co., Ltd.	110,000	3,506,253
Nabtesco Corp.	16,900	671,381
Nagoya Railroad Co., Ltd.	800	17,973
NEC Corp.	1,100	30,184
Nexon Co., Ltd. *	800	21,519
NGK Insulators Ltd.	1,100	21,781
NGK Spark Plug Co., Ltd.	700	15,975
NH Foods Ltd.	409	11,765
Nichias Corp.	42,000	546,880
Nidec Corp.	1,000	132,983
Nifco, Inc.	171,000	11,163,075
Nihon M&A Center, Inc.	222,600	10,656,872
Nikon Corp.	1,400	26,587
Nintendo Co., Ltd.	11,300	4,383,966
Nippon Building Fund, Inc.	6	28,917
Nippon Electric Glass Co., Ltd.	400	16,331
Nippon Express Co., Ltd.	300	19,036
Nippon Paint Holdings Co., Ltd.	700	24,695
Nippon Prologis REIT, Inc.	8	16,821
Nippon Shinyaku Co., Ltd.	50,000	3,543,411
Nippon Shokubai Co., Ltd.	66,800	5,038,780
Nippon Steel & Sumitomo Metal Corp.	3,100	74,324
Nippon Telegraph & Telephone Corp.	2,800	135,373
Nippon Yusen K.K. *	600	12,690
Nissan Chemical Industries Ltd.	500	18,650
Nissan Motor Co., Ltd.	9,400	91,418
Nisshin Seifun Group, Inc.	800	14,060
Nissin Foods Holdings Co., Ltd.	200	12,593
Nitori Holdings Co., Ltd.	12,205	1,773,769
Nitto Denko Corp.	700	65,091
NOK Corp.	400	9,825
Nomura Holdings, Inc.	14,700	84,125
Nomura Real Estate Holdings, Inc.	500	11,005
Nomura Real Estate Master Fund, Inc.	16	19,996
Nomura Research Institute Ltd.	21,260	901,320
NSK Ltd.	1,600	23,038
NTT Data Corp.	2,500	29,117
NTT DOCOMO, Inc.	5,700	138,047
Obayashi Corp.	2,600	34,043
Obic Co., Ltd.	300	19,857
Odakyu Electric Railway Co., Ltd.	1,200	23,475
Oji Holdings Corp.	4,000	23,444
Olympus Corp.	139,500	5,191,446
Omron Corp.	800	44,828
Ono Pharmaceutical Co., Ltd.	1,700	38,962
Oracle Corp., Japan	6,900	583,847
Oriental Land Co., Ltd.	900	71,985
ORIX Corp.	5,400	92,845
Osaka Gas Co., Ltd.	1,600	30,990

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Laudus MarketMasters Funds | Annual Report

See financial notes

Table of Contents

Laudus International MarketMasters Fund

Portfolio Holdings as of October 31, 2017 (continued)

Security	Number of Shares	Value ($)
Otsuka Corp.	5,500	374,927
Otsuka Holdings Co., Ltd.	1,600	66,839
Outsourcing, Inc.	296,400	4,086,187
Panasonic Corp.	9,000	135,894
Park24 Co., Ltd.	400	9,246
Persol Holdings Co., Ltd.	23,200	575,259
Pigeon Corp.	98,600	3,499,105
Pola Orbis Holdings, Inc.	34,200	1,090,108
Rakuten, Inc.	3,800	40,663
Recruit Holdings Co., Ltd.	4,500	110,329
Renesas Electronics Corp. *	74,300	960,631
Resona Holdings, Inc.	8,900	48,107
Resorttrust, Inc.	273,400	5,383,126
Ricoh Co., Ltd.	2,900	26,911
Rinnai Corp.	100	8,568
Rohm Co., Ltd.	400	37,235
Rohto Pharmaceutical Co., Ltd.	151,400	3,494,711
Ryohin Keikaku Co., Ltd.	100	29,500
Sakata Seed Corp.	54,400	1,644,889
Sankyo Co., Ltd.	200	6,455
Sankyu, Inc.	12,480	515,963
Santen Pharmaceutical Co., Ltd.	1,500	23,835
Sanwa Holdings Corp.	291,900	3,660,510
SBI Holdings, Inc.	836	13,193
SCSK Corp.	15,100	651,169
Secom Co., Ltd.	900	68,528
Sega Sammy Holdings, Inc.	700	9,854
Seibu Holdings, Inc.	700	12,514
Seiko Epson Corp.	1,100	26,250
Sekisui Chemical Co., Ltd.	1,682	33,950
Sekisui House Ltd.	2,455	45,905
Seven & i Holdings Co., Ltd.	3,100	124,944
Seven Bank Ltd.	2,900	10,725
Sharp Corp. *	600	19,087
Shimadzu Corp.	1,000	20,792
Shimamura Co., Ltd.	142	15,820
Shimano, Inc.	345	47,210
Shimizu Corp.	2,300	27,072
Shin-Etsu Chemical Co., Ltd.	1,624	171,269
Shinsei Bank Ltd.	700	11,813
Shionogi & Co., Ltd.	1,200	64,604
Shiseido Co., Ltd.	1,600	65,996
SHO-BOND Holdings Co., Ltd.	75,800	4,664,605
Showa Shell Sekiyu K.K.	900	10,618
SMC Corp.	237	90,667
SMS Co., Ltd.	69,200	2,084,610
SoftBank Group Corp.	3,431	304,062
Sohgo Security Services Co., Ltd.	300	14,453
Sompo Holdings, Inc.	1,500	60,293
Sony Corp.	94,900	3,970,111
Sony Financial Holdings, Inc.	700	11,629
Stanley Electric Co., Ltd.	600	22,149
Start Today Co., Ltd.	22,700	621,744
Subaru Corp.	2,500	86,373
Sumitomo Chemical Co., Ltd.	6,000	42,167
Sumitomo Corp.	4,800	69,428
Sumitomo Dainippon Pharma Co., Ltd.	700	9,991
Sumitomo Electric Industries Ltd.	3,100	52,778
Sumitomo Heavy Industries Ltd.	400	16,806
Sumitomo Metal Mining Co., Ltd.	1,000	39,452
Sumitomo Mitsui Financial Group, Inc.	5,500	220,345
Sumitomo Mitsui Trust Holdings, Inc.	1,400	55,258
Sumitomo Realty & Development Co., Ltd.	1,495	50,071
Sumitomo Rubber Industries Ltd.	800	15,190
Sundrug Co., Ltd.	300	13,056
Suntory Beverage & Food Ltd.	600	27,607
Suruga Bank Ltd.	27,400	623,860
Suzuken Co., Ltd.	300	10,814

Security	Number of Shares	Value ($)
Suzuki Motor Corp.	1,400	76,683
Sysmex Corp.	600	41,064
T&D Holdings, Inc.	2,200	34,321
Taiheiyo Cement Corp.	500	19,984
Taisei Corp.	26,700	1,479,367
Taisho Pharmaceutical Holdings Co., Ltd.	100	7,616
Taiyo Nippon Sanso Corp.	629	7,552
Takashimaya Co., Ltd.	1,000	9,201
Takeda Pharmaceutical Co., Ltd.	2,900	163,516
TDK Corp.	500	38,420
TechnoPro Holdings, Inc.	18,400	843,611
Teijin Ltd.	800	16,932
Terumo Corp.	1,300	54,171
The Bank of Kyoto Ltd.	200	10,503
The Chiba Bank Ltd.	3,000	22,997
The Chugoku Bank Ltd.	700	10,034
The Chugoku Electric Power Co., Inc.	1,100	12,265
The Hachijuni Bank Ltd.	1,511	9,463
The Hiroshima Bank Ltd.	1,043	8,831
The Kansai Electric Power Co., Inc.	2,900	39,713
The Shizuoka Bank Ltd.	2,454	23,881
The Yokohama Rubber Co., Ltd.	500	11,241
THK Co., Ltd.	500	18,238
TIS, Inc.	18,200	566,379
Tobu Railway Co., Ltd.	800	23,469
Toho Co., Ltd.	500	16,566
Toho Gas Co., Ltd.	266	7,437
Tohoku Electric Power Co., Inc.	1,800	23,614
Tokio Marine Holdings, Inc.	2,800	120,700
Tokyo Base Co., Ltd. *	86,100	3,530,455
Tokyo Electric Power Co. Holdings, Inc. *	5,800	23,807
Tokyo Electron Ltd.	600	105,648
Tokyo Gas Co., Ltd.	1,600	39,913
Tokyo Tatemono Co., Ltd.	800	11,223
Tokyu Corp.	2,200	33,280
Tokyu Fudosan Holdings Corp.	2,000	13,112
Topcon Corp.	142,400	3,010,842
Toppan Printing Co., Ltd.	2,261	23,003
Toray Industries, Inc.	6,000	60,730
Toshiba Corp. *	16,000	46,295
Tosoh Corp.	1,000	21,581
TOTO Ltd.	600	29,384
Toyo Seikan Group Holdings Ltd.	700	12,382
Toyo Suisan Kaisha Ltd.	365	14,042
Toyo Tire & Rubber Co., Ltd.	208,600	4,719,898
Toyoda Gosei Co., Ltd.	300	7,336
Toyota Industries Corp.	714	43,948
Toyota Motor Corp.	266,677	16,540,922
Toyota Tsusho Corp.	900	32,733
Trend Micro, Inc.	500	26,812
Tsubaki Nakashima Co. Ltd.	167,200	3,855,450
Tsuruha Holdings, Inc.	5,000	619,913
Ulvac, Inc.	71,400	5,058,262
Unicharm Corp.	1,600	36,409
United Urban Investment Corp.	12	17,263
USS Co., Ltd.	900	18,193
Vector, Inc.	93,300	1,233,673
West Japan Railway Co.	641	45,201
Yahoo Japan Corp.	5,700	25,484
Yakult Honsha Co., Ltd.	400	33,071
Yamada Denki Co., Ltd.	2,500	13,298
Yamaguchi Financial Group, Inc.	1,274	15,432
Yamaha Corp.	700	27,504
Yamaha Motor Co., Ltd.	1,100	33,014
Yamato Holdings Co., Ltd.	1,400	28,624
Yamazaki Baking Co., Ltd.	500	9,000
Yaskawa Electric Corp.	1,021	36,583

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Table of Contents

Laudus International MarketMasters Fund

Portfolio Holdings as of October 31, 2017 (continued)

Security	Number of Shares	Value ($)
Yokogawa Electric Corp.	900	17,097
Zenkoku Hosho Co., Ltd.	75,700	3,110,417
		246,289,331

Luxembourg 0.0%
Millicom International Cellular S.A. SDR	257	16,435

Malaysia 0.2%
My EG Services Bhd	4,905,200	2,537,601

Mexico 0.6%
Arca Continental S.A.B. de C.V.	137,970	878,048
Grupo Financiero Banorte S.A.B. de C.V., Class O	371,100	2,202,395
Grupo Financiero Santander Mexico S.A.B. de C.V., Class B	229,921	387,244
Grupo Televisa S.A.B. ADR	326,500	7,147,085
Infraestructura Energetica Nova S.A.B. de C.V.	90,200	460,557
		11,075,329

Netherlands 1.9%
ABN AMRO Group N.V. CVA	1,534	47,377
Aegon N.V.	7,784	45,956
AerCap Holdings N.V. *	636	33,479
Akzo Nobel N.V.	21,457	1,937,156
Altice N.V., Class A *	1,928	36,359
Altice N.V., Class B *	431	8,126
AMG Advanced Metallurgical Group N.V.	50,907	2,436,423
ArcelorMittal *	2,750	78,748
ASML Holding N.V.	26,871	4,848,314
ASR Nederland N.V.	202,690	8,309,200
Boskalis Westminster N.V.	44,513	1,591,184
Gemalto N.V.	322	12,743
Heineken Holding N.V.	420	38,985
Heineken N.V.	1,062	103,474
ING Groep N.V.	15,959	294,914
Koninklijke Ahold Delhaize N.V.	5,273	99,228
Koninklijke DSM N.V.	752	64,159
Koninklijke KPN N.V.	13,941	47,969
Koninklijke Philips N.V.	80,566	3,283,298
Koninklijke Vopak N.V.	285	12,336
NN Group N.V.	1,336	55,948
NXP Semiconductors N.V. *	1,421	166,328
Randstad Holding N.V.	474	29,162
Refresco Group N.V.	285,760	6,607,418
RELX N.V.	3,995	90,194
Unibail-Rodamco SE	410	102,626
Unilever N.V. CVA	6,700	389,202
Wolters Kluwer N.V.	58,810	2,882,428
		33,652,734

New Zealand 1.8%
a2 Milk Co., Ltd. *	1,408,426	8,233,663
Auckland International Airport Ltd.	1,728,415	7,366,785
Contact Energy Ltd.	2,757	10,851
Fisher & Paykel Healthcare Corp., Ltd.	520,440	4,720,479
Fletcher Building Ltd.	2,756	13,902
Mercury NZ Ltd.	3,435,064	7,733,081
Meridian Energy Ltd.	6,222	12,139
Ryman Healthcare Ltd.	1,821	11,589

Security	Number of Shares	Value ($)
SKYCITY Entertainment Group Ltd.	1,352,351	3,599,860
Spark New Zealand Ltd.	7,727	19,468
		31,721,817

Norway 0.2%
Aker BP A.S.A	136,610	3,147,050
DNB A.S.A.	4,043	78,027
Gjensidige Forsikring A.S.A.	794	14,942
Marine Harvest A.S.A. *	1,579	30,834
Norsk Hydro A.S.A.	5,616	43,459
Orkla A.S.A.	3,360	32,912
Schibsted A.S.A., B Shares	341	8,002
Schibsted A.S.A., Class A	307	7,915
Statoil A.S.A.	4,744	96,386
Telenor A.S.A.	3,036	64,466
Yara International A.S.A.	708	33,625
		3,557,618

Papua New Guinea 0.0%
Oil Search Ltd.	5,652	32,038

Peru 0.2%
Credicorp Ltd.	15,974	3,345,595

Portugal 0.0%
Banco Espirito Santo S.A. *(d)	42,176	—
EDP - Energias de Portugal S.A.	9,679	34,517
Galp Energia, SGPS, S.A.	2,094	38,932
Jeronimo Martins, SGPS, S.A.	1,001	18,187
		91,636

Republic of Korea 1.2%
Hugel, Inc. *	902	346,112
ING Life Insurance Korea Ltd.	114,562	4,908,266
LG Innotek Co., Ltd.	4,041	622,165
Loen Entertainment, Inc.	29,485	2,802,832
Mando Corp.	4,231	1,233,027
Medy-Tox, Inc.	2,673	1,011,812
Netmarble Games Corp. *	5,592	868,486
Samsung Electronics Co., Ltd.	2,619	6,456,109
Samsung SDI Co., Ltd.	6,482	1,194,298
SK Materials Co., Ltd.	8,136	1,363,804
Yuhan Corp.	2,317	422,168
		21,229,079

Russia 0.1%
Globaltrans Investment plc GDR	34,600	319,704
X5 Retail Group N.V. GDR *	20,481	841,769
		1,161,473

Singapore 1.8%
Ascendas Real Estate Investment Trust	3,747,533	7,534,994
CapitaLand Commercial Trust	11,660	14,852
CapitaLand Ltd.	10,200	27,469
CapitaLand Mall Trust	4,712,000	6,985,392
City Developments Ltd.	1,627	15,451
ComfortDelGro Corp., Ltd.	8,400	12,453
DBS Group Holdings Ltd.	7,316	122,167
Genting Singapore plc	24,600	22,019
Global Logistic Properties Ltd.	10,600	25,820
Golden Agri-Resources Ltd.	34,700	10,057

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Laudus MarketMasters Funds | Annual Report

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Table of Contents

Laudus International MarketMasters Fund

Portfolio Holdings as of October 31, 2017 (continued)

Security	Number of Shares	Value ($)
Hutchison Port Holdings Trust, Class U	25,700	11,051
Jardine Cycle & Carriage Ltd.	411	11,885
Jardine Matheson Holdings Ltd.	909	58,232
Jardine Strategic Holdings Ltd.	900	37,751
Keppel Corp., Ltd.	6,000	33,026
Oversea-Chinese Banking Corp., Ltd.	12,938	112,996
Sarine Technologies Ltd.	1,433,700	1,026,057
SATS Ltd.	2,284,700	7,880,800
Sembcorp Industries Ltd.	3,800	9,203
Singapore Airlines Ltd.	2,131	16,060
Singapore Exchange Ltd.	3,200	18,009
Singapore Press Holdings Ltd.	6,300	12,476
Singapore Technologies Engineering Ltd.	6,200	15,828
Singapore Telecommunications Ltd.	33,700	92,741
StarHub Ltd.	3,300	6,369
Suntec Real Estate Investment Trust	9,324	13,348
United Overseas Bank Ltd.	5,441	98,295
UOL Group Ltd.	2,100	13,926
Venture Corp., Ltd.	537,000	7,676,247
Wilmar International Ltd.	6,500	16,175
Yangzijiang Shipbuilding Holdings Ltd.	10,500	12,130
		31,943,279

South Africa 0.3%
Bid Corp., Ltd.	26,434	581,450
Dis-Chem Pharmacies Ltd.	1,806,396	4,228,924
RMB Holdings Ltd.	122,055	539,596
The Bidvest Group Ltd.	26,434	320,941
		5,670,911

Spain 1.3%
Abertis Infraestructuras S.A.	2,876	62,204
ACS Actividades de Construccion y Servicios S.A.	976	38,473
Aena SME S.A.	273	50,088
Amadeus IT Group S.A.	67,124	4,554,289
Banco Bilbao Vizcaya Argentaria S.A.	27,530	240,735
Banco De Sabadell S.A.	22,171	44,391
Banco Santander S.A.	65,957	447,143
Bankia S.A.	4,090	19,518
Bankinter S.A.	150,940	1,424,381
CaixaBank S.A.	14,582	68,220
Distribuidora Internacional de Alimentacion S.A.	2,418	11,826
Enagas S.A.	903	26,010
Endesa S.A.	1,266	28,977
Ferrovial S.A.	1,992	43,260
Gas Natural SDG S.A.	1,463	31,305
Grifols S.A.	1,246	38,993
Iberdrola S.A.	23,615	190,833
Industria de Diseno Textil S.A.	4,495	168,014
Inmobiliaria Colonial Socimi S.A.	493,797	4,701,180
International Consolidated Airlines Group S.A.	2,586	21,828
Mapfre S.A.	4,274	13,978
Masmovil Ibercom S.A. *	45,035	3,720,392
NH Hotel Group S.A.	821,767	5,195,581
Prosegur Cia de Seguridad S.A.	59,934	457,382
Red Electrica Corp. S.A.	1,811	40,100
Repsol S.A.	5,089	95,365
Siemens Gamesa Renewable Energy S.A.	1,017	14,746
Telefonica S.A.	18,589	194,914
		21,944,126

Security	Number of Shares	Value ($)
Sweden 3.5%
AAK AB	114,602	9,261,852
AF AB, B Shares	353,944	7,293,107
Alfa Laval AB	1,214	30,744
Assa Abloy AB, Class B	4,143	87,346
Atlas Copco AB, A Shares	84,509	3,705,842
Atlas Copco AB, B Shares	22,379	888,406
Boliden AB	57,267	2,003,873
Electrolux AB, B Shares	992	35,064
Essity AB, Class B *	2,459	73,498
Fabege AB	24,556	518,506
Getinge AB, B Shares	777	15,294
Hennes & Mauritz AB, B Shares	654,014	16,412,542
Hexagon AB, B Shares	1,045	53,582
Hexpol AB	44,283	447,893
Hufvudstaden AB, A Shares	25,635	421,830
Husqvarna AB, B Shares	52,065	508,634
ICA Gruppen AB	327	12,060
Industrivarden AB, C Shares	637	16,369
Intrum Justitia AB	18,992	665,610
Investor AB, B Shares	1,882	93,247
Kinnevik AB, Class B	933	30,604
LE Lundbergfortagen AB, B Shares	154	12,021
Lundin Petroleum AB *	743	17,479
Munters Group AB *	25,927	214,777
Nordea Bank AB	12,520	151,301
Saab AB, Class B	95,867	4,897,678
Sandvik AB	4,625	84,422
Securitas AB, B Shares	1,246	21,862
Skandinaviska Enskilda Banken AB, A Shares	6,284	77,442
Skanska AB, B Shares	1,400	30,700
SKF AB, B Shares	303,830	7,060,654
SSAB AB, A Shares *	485,025	2,381,204
Svenska Handelsbanken AB, A Shares	6,224	89,204
Swedbank AB, A Shares	20,725	514,348
Swedish Match AB	752	28,329
Tele2 AB, B Shares	1,405	17,871
Telefonaktiebolaget LM Ericsson, B Shares	12,696	79,897
Telia Co. AB	10,509	48,640
Volvo AB, B Shares	130,116	2,577,109
		60,880,841

Switzerland 6.2%
ABB Ltd.	8,172	213,412
Adecco Group AG	658	52,204
Baloise Holding AG	209	32,950
Barry Callebaut AG *	9	14,063
Belimo Holding AG	663	2,842,995
Burckhardt Compression Holding AG	7,387	2,200,674
Cembra Money Bank AG *	5,753	515,379
Chocoladefabriken Lindt & Spruengli AG	4	23,154
Cie Financiere Richemont S.A.	83,451	7,693,037
Credit Suisse Group AG *	1,236,579	19,487,027
Daetwyler Holding AG	12,814	2,148,822
dormakaba Holding AG, Series B *	570	564,170
Dufry AG *	5,530	823,131
EMS-Chemie Holding AG	33	21,634
Geberit AG	153	69,271
Georg Fischer AG	3,836	4,726,220
Givaudan S.A.	38	84,865
Idorsia Ltd. *	129,552	2,553,196
Julius Baer Group Ltd. *	905	53,529
Kuehne & Nagel International AG	23,990	4,191,432
LafargeHolcim Ltd. *	198,034	11,181,967
Landis&Gyr Group AG *	32,221	2,192,928

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Laudus MarketMasters Funds | Annual Report

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Table of Contents

Laudus International MarketMasters Fund

Portfolio Holdings as of October 31, 2017 (continued)

Security	Number of Shares	Value ($)
Leonteq AG *	26,069	1,636,279
Logitech International S.A.	124,585	4,455,079
Lonza Group AG *	16,744	4,448,230
Nestle S.A.	27,987	2,354,784
Novartis AG	9,131	753,118
Pargesa Holding S.A.	171	14,320
Partners Group Holding AG	4,909	3,301,734
Roche Holding AG	2,887	667,275
Schindler Holding AG	248	55,738
SGS S.A.	22	54,330
Sika AG	9	66,613
Sonova Holding AG	212	38,273
Straumann Holding AG	13,369	9,334,235
Swiss Life Holding AG *	131	45,532
Swiss Prime Site AG *	284	24,240
Swiss Re AG	1,337	125,826
Swisscom AG	107	54,059
Tecan Group AG	13,114	2,773,713
Temenos Group AG *	51,430	5,938,698
The Swatch Group AG	241	18,166
The Swatch Group AG - Bearer Shares	11,440	4,483,837
U-Blox Holding AG *	24,003	4,712,827
UBS Group AG *	15,058	256,183
Vifor Pharma AG	208	26,753
Zurich Insurance Group AG	621	189,508
		107,515,410

Taiwan 1.4%
Airtac International Group	327,070	5,301,767
MediaTek, Inc.	265,000	3,015,571
Merry Electronics Co., Ltd.	503,000	3,847,750
Silergy Corp.	189,000	4,082,160
Taiwan Semiconductor Manufacturing Co., Ltd.	151,000	1,220,729
Taiwan Semiconductor Manufacturing Co., Ltd. ADR	145,275	6,149,490
		23,617,467

Thailand 0.0%
PTT Global Chemical PCL	293,500	706,803

United Kingdom 15.7%
3i Group plc	176,930	2,258,006
Admiral Group plc	882	22,531
Anglo American plc	5,507	103,879
Antofagasta plc	1,567	19,860
Ashtead Group plc	227,728	5,866,162
Associated British Foods plc	1,441	63,778
AstraZeneca plc	5,206	352,243
Auto Trader Group plc	3,893	17,703
Aviva plc	16,722	112,178
Babcock International Group plc	1,027	11,074
BAE Systems plc	13,080	103,036
Barclays plc	69,589	171,726
Barratt Developments plc	4,148	36,066
Bellway plc	218,562	10,597,156
BHP Billiton plc	8,705	157,610
BP plc	80,423	545,482
British American Tobacco plc	9,454	610,821
BT Group plc	34,908	120,277
Bunzl plc	48,437	1,508,837
Burberry Group plc	75,329	1,902,616
Burford Capital Ltd.	160,605	2,645,013
Capita plc	2,806	19,541
Carnival plc	34,821	2,295,688

Security	Number of Shares	Value ($)
Centrica plc	22,757	51,321
Cineworld Group plc	751,795	6,633,025
Close Brothers Group plc	22,942	423,124
CNH Industrial N.V.	1,127,367	14,383,673
Cobham plc *	9,706	17,919
Coca-Cola European Partners plc	911	37,369
Coca-Cola HBC AG CDI *	719	24,300
Compass Group plc	207,314	4,551,442
ConvaTec Group plc	5,022	13,066
Croda International plc	200,177	11,124,774
Dechra Pharmaceuticals plc	20,721	565,851
Diageo plc	193,857	6,619,986
Diploma plc	406,566	5,826,391
Direct Line Insurance Group plc	5,477	27,032
Dixons Carphone plc	3,823	8,806
easyJet plc	27,412	487,518
Elementis plc	569,915	2,152,159
Equiniti Group plc	662,723	2,666,112
Experian plc	289,674	6,102,936
Ferguson plc	20,049	1,402,026
Fevertree Drinks plc	22,444	632,249
Fresnillo plc	878	15,184
G4S plc	820,843	3,062,911
GKN plc	7,062	29,765
GlaxoSmithKline plc	20,194	362,428
Glencore plc *	5,116,779	24,679,245
Greene King plc	357,423	2,568,281
Greggs plc	32,542	550,631
Halma plc	379,520	5,955,004
Hammerson plc	3,152	21,942
Hargreaves Lansdown plc	1,036	21,762
Hikma Pharmaceuticals plc	571	8,826
Hiscox Ltd.	70,800	1,342,569
HSBC Holdings plc	82,201	802,703
IMI plc	1,063	17,248
Imperial Brands plc	3,951	161,088
Inmarsat plc	1,942	16,019
InterContinental Hotels Group plc	733	40,609
Intermediate Capital Group plc	338,217	4,367,178
Intertek Group plc	23,370	1,683,599
Intu Properties plc	3,656	10,496
Investec plc	2,575	17,620
ITV plc	14,455	31,597
J. Sainsbury plc	6,526	21,015
John Wood Group plc	2,453	23,195
Johnson Matthey plc	798	35,827
Jupiter Fund Management plc	99,801	787,478
Just Eat plc *	489,422	5,070,430
Kingfisher plc	8,978	37,327
Laird plc	2,334,605	5,054,150
Land Securities Group plc	2,998	38,506
Legal & General Group plc	24,618	87,285
Liberty Global plc, Class A *	88,400	2,727,140
Liberty Global plc, Series C *	228,700	6,835,843
Lloyds Banking Group plc	24,931,153	22,598,358
London Stock Exchange Group plc	1,307	65,270
Marks & Spencer Group plc	6,693	30,590
Mediclinic International plc	1,464	11,317
Meggitt plc	493,307	3,395,938
Merlin Entertainments plc	2,820	14,185
Metro Bank plc *	10,861	512,846
Micro Focus International plc	33,407	1,173,404
Mondi plc	1,499	36,252
National Grid plc	14,051	169,138
Next plc	618	40,397
Old Mutual plc	19,936	50,572
Pearson plc	3,387	31,627
Persimmon plc	1,267	47,151

₃₅

Laudus MarketMasters Funds | Annual Report

See financial notes

Table of Contents

Laudus International MarketMasters Fund

Portfolio Holdings as of October 31, 2017 (continued)

Security	Number of Shares	Value ($)
Playtech plc	48,825	637,981
Provident Financial plc	604	7,473
Prudential plc	10,624	260,770
Randgold Resources Ltd.	386	37,931
Reckitt Benckiser Group plc	2,723	243,618
RELX plc	4,406	101,386
Renishaw plc	9,971	655,969
Rentokil Initial plc	2,954,406	13,174,723
Rio Tinto plc	5,095	240,793
Rolls-Royce Holdings plc *	6,841	88,406
Rolls-Royce Holdings plc, C Shares *(d)	314,686	418
Royal Bank of Scotland Group plc *	2,365,442	8,885,942
Royal Dutch Shell plc, A Shares	18,384	578,724
Royal Dutch Shell plc, B Shares	15,401	495,870
Royal Mail plc	3,646	18,130
RSA Insurance Group plc	4,197	35,046
Sanne Group plc	112,541	1,195,182
Schroders plc	181,340	8,413,600
Schroders plc, Non-Voting Shares	1,100	36,785
Segro plc	166,240	1,200,104
Severn Trent plc	939	26,329
Sky plc *	4,171	52,239
Smith & Nephew plc	3,607	68,034
Smiths Group plc	130,728	2,727,755
Spectris plc	93,293	3,171,819
Spirax-Sarco Engineering plc	135,894	10,196,969
SSE plc	4,164	76,476
St. James's Place plc	2,172	33,948
Standard Chartered plc *	13,541	134,867
Standard Life Aberdeen plc	10,989	62,706
Synthomer plc	71,714	466,330
Tate & Lyle plc	1,823	15,660
Taylor Wimpey plc	13,443	35,625
Tesco plc	33,822	81,497
The Berkeley Group Holdings plc	540	26,831
The British Land Co., plc	4,027	32,152
The Sage Group plc	4,409	43,643
The Weir Group plc	862	22,347
Travis Perkins plc	1,072	21,641
TUI AG	1,788	32,293
UDG Healthcare plc	197,737	2,427,963
Ultra Electronics Holdings plc	178,825	4,330,198
Unilever plc	79,324	4,495,604
United Utilities Group plc	2,806	31,044
Victrex plc	262,751	8,366,224
Vodafone Group plc	109,512	313,241
WH Smith plc	50,898	1,383,776
Whitbread plc	741	36,343
WM Morrison Supermarkets plc	8,839	26,320
Worldpay Group plc	8,412	45,346
WPP plc	560,388	9,907,220
		272,955,599

United States 0.5%
Willis Towers Watson plc	51,766	8,338,467
Total Common Stock
(Cost $1,267,196,837)		1,686,994,604

Preferred Stock 0.5% of net assets

Brazil 0.3%
Itau Unibanco Holding S.A.	341,850	4,394,214

Security	Number of Shares	Value ($)
Germany 0.2%
Bayerische Motoren Werke AG	214	18,777
Fuchs Petrolub SE	12,665	713,197
Henkel AG & Co. KGaA	734	103,066
Jungheinrich AG	73,770	3,359,635
Porsche Automobil Holding SE	630	46,100
Schaeffler AG	674	10,746
Volkswagen AG	756	138,426
		4,389,947

Italy 0.0%
Intesa Sanpaolo S.p.A. - RSP	4,119	12,982
Telecom Italia S.p.A. - RSP	25,361	18,018
		31,000
Total Preferred Stock
(Cost $6,525,039)		8,815,161

Other Investment Companies 2.8% of net assets

Equity Fund 0.0%
iShares MSCI EAFE ETF	1,156	80,492

Money Market Fund 2.8%
State Street Institutional U.S. Government Money Market Fund, Premier Class 0.96% (a)	48,228,436	48,228,436
Total Other Investment Companies
(Cost $48,307,011)		48,308,928

Rights 0.0% of net assets
Spain 0.0%
Banco Santander S.A. expires 11/01/17 *	65,957	3,150
Ferrovial S.A. expires 11/13/17 *	1,992	958
Total Rights
(Cost $4,040)		4,108
Security Rate, Maturity Date	Face Amount ($)	Value ($)
Short-Term Investment 0.0% of net assets

U.S. Treasury Obligation 0.0%
United States Treasury Bill 1.09%, 12/07/17 (b)(c)	30,000	29,970
Total Short-Term Investment
(Cost $29,968)		29,970

	Number of Contracts	Notional Amount ($)	Current Value/ Unrealized Appreciation ($)
Futures Contracts
Long
MSCI EAFE Index, e-mini, expires 12/15/17	170	17,062,900	345,668

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Table of Contents

Laudus International MarketMasters Fund

Portfolio Holdings as of October 31, 2017 (continued)

Expiration
Date

Counterparty

Currency
to be
Received

Amount of
Currency
to be
Received

Currency
to be
Delivered

Amount of
Currency
to be
Delivered

Unrealized
Appreciation
($)

Forward Foreign Currency Exchange Contracts

03/21/2018

State Street Bank & Trust Co.

USD

7,095,688

CHF

6,736,000

276,065

01/31/2018

State Street Bank & Trust Co.

USD

15,501,543

NZD

22,439,500

169,497

Net Unrealized Appreciation on Forward Foreign Currency Exchange Contracts

445,562

At 10/31/17, the values of certain foreign securities held by the fund aggregating $1,403,566,620 were adjusted from their closing market values in accordance with international fair valuation procedures approved by the fund's Board of Trustees. (See financial note 2(a) for additional information)

*	Non-income producing security.
(a)	The rate shown is the 7-day yield.
(b)	All or a portion of this security is held as collateral for open futures contracts.
(c)	The rate shown is the purchase yield.
(d)	Fair-valued by management in accordance with procedures approved by the Board of Trustees.

ADR —	American Depositary Receipt
CVA —	Dutch Certificate
ETF —	Exchange-traded fund
GDR —	Global Depositary Receipt
REIT —	Real Estate Investment Trust
RSP —	Risparmio (Convertible Savings Shares)
SDR —	Swedish Depositary Receipt

CHF —	Swiss franc
NZD —	New Zealand dollar
USD —	U.S. dollar

The following is a summary of the inputs used to value the fund’s investments as of October 31, 2017 (see financial note 2(a) for additional information):

Description	Quoted Prices in Active Markets for Identical Assets (Level 1)	Other Significant Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total
Assets
Common Stock¹	$—	$143,606,954	$—	$143,606,954
Argentina	521,660	—	—	521,660
Austria	447,448	134,489	—	581,937
Brazil	15,446,719	—	—	15,446,719
Canada	99,237,211	—	—	99,237,211
China	16,577,402	45,932,032	—	62,509,434
Finland	2,555,242	1,513,957	—	4,069,199
France	19,124,598	167,188,513	—	186,313,111
Germany	3,638,626	169,949,725	—	173,588,351
Hong Kong	3,582,036	20,602,922	— ^*	24,184,958
India	4,813,304	38,676,470	—	43,489,774
Ireland	9,201,755	346,644	—	9,548,399
Israel	4,287,501	650,569	—	4,938,070
Italy	3,562,532	61,642,059	—	65,204,591
Japan	3,147,992	243,141,339	—	246,289,331
Mexico	11,075,329	—	—	11,075,329
Netherlands	6,906,453	26,746,281	—	33,652,734
New Zealand	3,611,449	28,110,368	—	31,721,817

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Table of Contents

Laudus International MarketMasters Fund

Portfolio Holdings as of October 31, 2017 (continued)

Description	Quoted Prices in Active Markets for Identical Assets (Level 1)	Other Significant Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total
Norway	$38,749	$3,518,869	$—	$3,557,618
Peru	3,345,595	—	—	3,345,595
Portugal	—	91,636	— ^*	91,636
Republic of Korea	9,812,611	11,416,468	—	21,229,079
Russia	1,161,473	—	—	1,161,473
South Africa	4,810,374	860,537	—	5,670,911
Spain	3,720,392	18,223,734	—	21,944,126
Sweden	8,173,494	52,707,347	—	60,880,841
Switzerland	2,890,389	104,625,021	—	107,515,410
Taiwan	6,149,490	17,467,977	—	23,617,467
Thailand	706,803	—	—	706,803
United Kingdom	30,963,419	241,991,762	418	272,955,599
United States	8,338,467	—	—	8,338,467
Preferred Stock¹	—	4,420,947	—	4,420,947
Brazil	4,394,214	—	—	4,394,214
Other Investment Companies¹	48,308,928	—	—	48,308,928
Rights ¹	4,108	—	—	4,108
Short-Term Investments¹	—	29,970	—	29,970
Futures Contracts²	345,668	—	—	345,668
Forward Foreign Currency Exchange Contracts²	—	445,562	—	445,562
Total	$340,901,431	$1,404,042,152	$418	$1,744,944,001

*	Level 3 amount shown includes securities determined to have no value at October 31, 2017.
¹	As categorized in Portfolio Holdings.
²	Futures contracts and forward foreign currency exchange contracts are valued at unrealized appreciation or depreciation.

The fund’s policy is to recognize transfers between Level 1, Level 2 and Level 3 as of the beginning of the fiscal year. There were security transfers in the amount of $9,217,354 and $31,899,311 from Level 1 to Level 2 and from Level 2 to Level 1, respectively, for the period ended October 31, 2017. The transfers between Level 1 and Level 2 were primarily due to the use of international fair valuation by the fund. There were no transfers in or out of Level 3 during the period. Fund Investments in underlying mutual funds and ETFs are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds and ETFs, which could be Level 1, Level 2 or Level 3.

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Table of Contents

Laudus International MarketMasters Fund

Statement of Assets and Liabilities

As of October 31, 2017

Assets
Investments in unaffiliated issuers, at value (cost $1,322,062,895)		$1,744,152,771
Foreign currency, at value (cost $926,676)		924,457
Deposit with broker for futures contracts		1,540,001
Receivables:
Investments sold		7,099,310
Dividends		2,164,173
Foreign tax reclaims		1,213,043
Fund shares sold		926,756
Variation margin on futures contracts		72,146
Unrealized appreciation on forward foreign currency exchange contracts		445,562
Prepaid expenses	+	27,743
Total assets		1,758,565,962
Liabilities
Payables:
Investments bought		11,076,329
Investment adviser and administrator fees		1,511,529
Shareholder service fees		212,739
Fund shares redeemed		3,502,557
Foreign capital gains tax		528,648
Accrued expenses and other liabilities	+	315,187
Total liabilities		17,146,989
Net Assets
Total assets		1,758,565,962
Total liabilities	–	17,146,989
Net assets		$1,741,418,973
Net Assets by Source
Capital received from investors		1,268,600,240
Net investment income not yet distributed		12,569,530
Net realized capital gains		37,875,984
Net unrealized capital appreciation		422,373,219

Net Asset Value (NAV) by Shares Class
Share Class	Net Assets	÷	Shares Outstanding	=	NAV
Investor Shares	$512,187,589		18,986,236		$26.98
Select Shares	$1,229,231,384		45,589,994		$26.96

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Table of Contents

Laudus International MarketMasters Fund

Statement of Operations

For the period November 1, 2016 through October 31, 2017

Investment Income
Dividends (net of foreign withholding tax of $3,595,367)		$32,505,473
Income from non-cash dividends	+	1,861,090
Total investment income		34,366,563
Expenses
Investment adviser and administrator fees		20,129,706
Shareholder service fees:
Investor Shares		1,099,136
Select Shares		1,790,132
Custodian fees		1,006,272
Portfolio accounting fees		177,490
Shareholder reports		126,019
Professional fees		66,804
Transfer agent fees		54,552
Registration fees		43,403
Independent trustees’ fees		15,895
Interest expense		779
Other expenses	+	59,284
Total expenses		24,569,472
Expense reduction by CSIM and its affiliates	–	4,070,354
Net expenses	–	20,499,118
Net investment income		13,867,445
Realized and Unrealized Gains (Losses)
Net realized gains on investments (net of foreign capital gain tax paid of ($184,190))		67,459,497
Net realized gains on futures contracts		4,610,038
Net realized losses on foreign currency transactions		(519,939)
Net realized gains on forward foreign currency exchange contracts	+	832,199
Net realized gains		72,381,795
Net change in unrealized appreciation (depreciation) on investments (net of change in foreign capital gains tax of $441,407)		312,792,465
Net change in unrealized appreciation (depreciation) on futures contracts		809,166
Net change in unrealized appreciation (depreciation) on foreign currency translations		181,584
Net change in unrealized appreciation (depreciation) on forward foreign currency exchange contracts	+	221,841
Net change in unrealized appreciation (depreciation)	+	314,005,056
Net realized and unrealized gains		386,386,851
Increase in net assets resulting from operations		$400,254,296

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Table of Contents

Laudus International MarketMasters Fund

Statement of Changes in Net Assets

For the current and prior report periods

Operations
	11/1/16-10/31/17		11/1/15-10/31/16
Net investment income		$13,867,445	$14,639,509
Net realized gains (losses)		72,381,795	(9,854,169)
Net change in unrealized appreciation (depreciation)	+	314,005,056	(18,810,623)
Increase (decrease) in net assets from operations		400,254,296	(14,025,283)
Distributions to Shareholders
Distributions from net investment income
Investor Shares		(3,023,945)	(6,292,923)
Select Shares	+	(9,031,598)	(18,622,940)
Total distributions from net investment income		(12,055,543)	(24,915,863)
Distributions from net realized gains
Investor Shares		—	(28,099,826)
Select Shares	+	—	(72,880,802)
Total distributions from net realized gains		—	(100,980,628)
Total distributions		($12,055,543)	($125,896,491)

Transactions in Fund Shares
		11/1/16-10/31/17		11/1/15-10/31/16
		SHARES	VALUE	SHARES	VALUE
Shares Sold
Investor Shares		1,073,343	$26,268,397	751,766	$15,557,806
Select Shares	+	3,940,536	93,709,180	4,875,860	100,112,035
Total shares sold		5,013,879	$119,977,577	5,627,626	$115,669,841
Shares Reinvested
Investor Shares		128,906	$2,663,205	1,484,420	$30,682,952
Select Shares	+	260,814	5,377,990	2,403,803	49,590,453
Total shares reinvested		389,720	$8,041,195	3,888,223	$80,273,405
Shares Redeemed
Investor Shares		(3,345,200)	($76,914,481)	(4,715,236)	($97,117,882)
Select Shares	+	(8,849,251)	(208,212,630)	(18,470,059)	(379,624,146)
Total shares redeemed		(12,194,451)	($285,127,111)	(23,185,295)	($476,742,028)
Net transactions in fund shares		(6,790,852)	($157,108,339)	(13,669,446)	($280,798,782)
Shares Outstanding and Net Assets
		11/1/16-10/31/17		11/1/15-10/31/16
		SHARES	NET ASSETS	SHARES	NET ASSETS
Beginning of period		71,367,082	$1,510,328,559	85,036,528	$1,931,049,115
Total increase or decrease	+	(6,790,852)	231,090,414	(13,669,446)	(420,720,556)
End of period		64,576,230	$1,741,418,973	71,367,082	$1,510,328,559
Net investment income not yet distributed			$12,569,530		$9,070,674

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Table of Contents

Laudus MarketMasters Funds

Financial Notes

1. Business Structure of the Funds:

Each of the funds in this report is a series of Schwab Capital Trust (the trust), a no-load, open-end management investment company. The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended (the 1940 Act). The list below shows all the funds in the trust as of the end of the period, including the funds discussed in this report, which are highlighted:

SCHWAB CAPITAL TRUST (ORGANIZED MAY 7, 1993)
Laudus Small-Cap MarketMasters Fund	Schwab Target 2045 Fund
Laudus International MarketMasters Fund	Schwab Target 2050 Fund
Schwab ^® S&P 500 Index Fund	Schwab Target 2055 Fund
Schwab Small-Cap Index Fund^®	Schwab Target 2060 Fund
Schwab Total Stock Market Index Fund^®	Schwab Fundamental US Large Company Index Fund
Schwab International Index Fund^®	Schwab Fundamental US Small Company Index Fund
Schwab MarketTrack All Equity Portfolio™	Schwab Fundamental International Large Company Index Fund
Schwab MarketTrack Growth Portfolio™	Schwab Fundamental International Small Company Index Fund
Schwab MarketTrack Balanced Portfolio™	Schwab Fundamental Emerging Markets Large Company Index Fund
Schwab MarketTrack Conservative Portfolio™	Schwab Fundamental Global Real Estate Index Fund
Schwab Balanced Fund™	Schwab Target 2010 Index Fund
Schwab Core Equity Fund™	Schwab Target 2015 Index Fund
Schwab Dividend Equity Fund™	Schwab Target 2020 Index Fund
Schwab Large-Cap Growth Fund™	Schwab Target 2025 Index Fund
Schwab Small-Cap Equity Fund™	Schwab Target 2030 Index Fund
Schwab Hedged Equity Fund™	Schwab Target 2035 Index Fund
Schwab Health Care Fund™	Schwab Target 2040 Index Fund
Schwab ^® International Core Equity Fund	Schwab Target 2045 Index Fund
Schwab Target 2010 Fund	Schwab Target 2050 Index Fund
Schwab Target 2015 Fund	Schwab Target 2055 Index Fund
Schwab Target 2020 Fund	Schwab Target 2060 Index Fund
Schwab Target 2025 Fund	Schwab^® Monthly Income Fund - Moderate Payout
Schwab Target 2030 Fund	Schwab^® Monthly Income Fund - Enhanced Payout
Schwab Target 2035 Fund	Schwab^® Monthly Income Fund - Maximum Payout
Schwab Target 2040 Fund

Each fund in this report offers two share classes: Investor Shares and Select Shares^®. Shares of each class represent an interest in the same portfolio, but each class has different expenses and investment minimums.

Shares are bought and sold at closing net asset value per share (NAV), which is the price for all outstanding shares of a fund or share class, as applicable. Each share has a par value of 1/1,000 of a cent, and the funds’ Board of Trustees (the Board) may authorize the issuance of as many shares as necessary.

Each fund maintains its own account for purposes of holding assets and accounting, and is considered a separate entity for tax purposes. Within its account, each fund may also keep certain assets in segregated accounts, as required by securities law.

2. Significant Accounting Policies:

The following is a summary of the significant accounting policies the funds use in their preparation of financial statements. The funds follow the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standard Codification Topic 946 Financial Services — Investment Companies. The accounting policies are in conformity with accounting principles generally accepted in the United States of America (GAAP).

The funds invest in certain other investment companies (underlying funds). For more information about the underlying funds’ operations and policies, please refer to those funds’ semiannual and annual reports, which are filed with the U.S. Securities and Exchange Commission (SEC).

Effective August 1, 2017, the funds adopted disclosure requirement changes for SEC Regulation S-X. The adopted changes are reflected throughout this report.

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Laudus MarketMasters Funds

Financial Notes (continued)

2. Significant Accounting Policies (continued):

(a) Security Valuation:

Under procedures approved by the Board, the investment adviser has formed a Pricing Committee to administer the pricing and valuation of portfolio securities and other assets and to ensure that prices used for internal purposes or provided by third parties reasonably reflect fair market value. Among other things, these procedures allow the funds to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.

The funds value the securities in their portfolios every business day. The funds use the following policies to value various types of securities:

• Securities traded on an exchange or over-the-counter: Traded securities are valued at the closing value for the day, or, on days when no closing value has been reported, at the mean of the most recent bid and ask quotes. Securities that are primarily traded on foreign exchanges are valued at the official closing price or the last sales price on the exchange where the securities are principally traded with these values then translated into U.S. dollars at the current exchange rate, unless these securities are fair valued as discussed below.

• Securities for which no quoted value is available: The Board has adopted procedures to fair value each fund’s securities when market prices are not “readily available” or are unreliable. For example, a fund may fair value a security when it is de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a price; or when a security’s primary trading market is closed during regular market hours. Each fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. The Pricing Committee considers a number of factors, including unobservable market inputs when arriving at fair value. The Pricing Committee may employ techniques such as the review of related or comparable assets or liabilities, related market activities, recent transactions, market multiples, book values, transactional back-testing, disposition analysis and other relevant information. The Pricing Committee regularly reviews these inputs and assumptions to calibrate the valuations. Due to the subjective and variable nature of fair value pricing, there can be no assurance that a fund could obtain the fair value assigned to the security upon the sale of such security. The Board convenes on a regular basis to review fair value determinations made by the funds pursuant to the valuation procedures.

• Foreign equity security fair valuation: The Board has adopted procedures to fair value foreign equity securities that are traded in markets that close prior to the funds valuing their holdings. By fair valuing securities whose prices may have been affected by events occurring after the close of trading, each fund seeks to establish prices that investors might expect to realize upon the current sales of these securities. This methodology is designed to deter “arbitrage” market timers, who seek to exploit delays between the change in the value of a fund’s portfolio holdings and the NAV of the fund’s shares, and seeks to help ensure that the prices at which the fund’s shares are purchased and redeemed are fair and do not result in dilution of shareholder interest or other harm to shareholders. When fair value pricing is used at the open or close of a reporting period, it may cause a temporary divergence between the return of a fund and that of its comparative index or benchmark. The Board regularly reviews fair value determinations made by the funds pursuant to these procedures.

• Futures contracts and forward foreign currency exchange contracts (forwards): Futures contracts are valued at their settlement prices as of the close of their exchanges. Forwards are valued based on that day’s forward exchange rates or by using an interpolated forward exchange rate for contracts with interim settlement dates.

• Short-term securities (60 days or less to maturity): Securities with remaining maturities of 60 days or less are generally valued at an evaluated price; however, such securities may be valued at their amortized cost if it approximates the security’s market value.

• Underlying funds: Mutual funds are valued at their respective NAVs. Exchange-traded funds (ETFs) traded on a recognized securities exchange are valued at the last reported sale price that day or the official closing price, if applicable.

In accordance with the authoritative guidance on fair value measurements and disclosures under GAAP, the funds disclose the fair value of their investments in a hierarchy that prioritizes the significant inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). If inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the valuation. If the funds determine that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value.

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Laudus MarketMasters Funds

Financial Notes (continued)

2. Significant Accounting Policies (continued):

The three levels of the fair value hierarchy are as follows:

• Level 1—quoted prices in active markets for identical securities—Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities, ETFs and futures contracts. Investments in mutual funds are valued daily at their NAVs, and investments in ETFs are valued daily at the last reported sale price or the official closing price, which are classified as Level 1 prices, without consideration to the classification level of the specific investments held by an underlying fund.

• Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)—Investments that trade in markets that are not considered to be active, but whose values are based on quoted market prices, dealer quotations or valuations provided by alternative pricing sources supported by observable inputs are classified as Level 2 prices. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, less liquid listed equities, and state, municipal and provincial obligations. In addition, international securities whose markets close hours before the funds value their holdings may require fair valuations due to significant movement in the U.S. markets occurring after the daily close of the foreign markets. The Board has approved a vendor that calculates fair valuations of international equity securities based on a number of factors that appear to correlate to the movements in the U.S. markets.

• Level 3—significant unobservable inputs (including the funds’ own assumptions in determining the fair value of investments)—Investments whose values are classified as Level 3 prices have significant unobservable inputs, as they may trade infrequently or not at all. When observable prices are not available for these securities, the funds use one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the funds in estimating the value of Level 3 prices may include the original transaction price, quoted prices for similar securities or assets in active markets, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3 prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the funds in the absence of market information. Assumptions used by the funds due to the lack of observable inputs may significantly impact the resulting fair value and therefore the funds’ results of operations.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The levels associated with valuing the funds’ investments as of October 31, 2017 are disclosed in the Portfolio Holdings.

(b) Accounting Policies for certain Portfolio Investments (if held):

Futures Contracts: Futures contracts are instruments that represent an agreement between two parties that obligates one party to buy, and the other party to sell, specific instruments at an agreed upon price on a stipulated future date. A fund must give the broker a deposit of cash and/or securities (initial margin) whenever it enters into a futures contract. The amount of the deposit may vary from one contract to another. Subsequent payments (variation margin) are made or received by a fund depending on the daily fluctuations in the value of the futures contract and are accounted for as unrealized appreciation or depreciation until the contract is closed, at which time the gains or losses are realized. Futures contracts are traded publicly on exchanges, and their market value may change daily.

Forward Foreign Currency Exchange Contracts: Forwards are contracts to buy and sell a currency at a set price on a future date. The value of the forwards is accounted for as unrealized appreciation or depreciation until the contracts settle, at which time the gains or losses are realized.

Security transactions are recorded as of the date the order to buy or sell the security is executed. Realized gains and losses from security transactions are based on the identified costs of the securities involved.

Assets and liabilities denominated in foreign currencies are reported in U.S. dollars. For assets and liabilities held on a given date, the dollar value is based on market exchange rates in effect on that date. Transactions involving foreign currencies, including purchases, sales, income receipts and expense payments, are calculated using exchange rates in effect on the transaction date. Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the differences between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange appreciation or depreciation arises from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period. These realized and unrealized foreign exchange gains or losses are

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Financial Notes (continued)

2. Significant Accounting Policies (continued):

reported in foreign currency transactions or translations in the Statement of Operations. The funds do not isolate the portion of the fluctuations on investments resulting from changes in foreign currency exchange rates from the fluctuations in market prices of investments held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.

Gains realized by the funds on the sale of securities in certain foreign countries may be subject to non-U.S. taxes. In those instances, the funds record a liability based on unrealized appreciation to provide for potential non-U.S. taxes payable upon the sale of these securities.

When a fund closes out a futures contract or forward position, it calculates the difference between the value of the position at the beginning and at the end of the contract, and records a realized gain or loss accordingly.

(d) Investment Income:

Interest income is recorded as it accrues. Dividends, in the form of cash or non-cash income such as in the form of additional securities, and distributions from portfolio securities and underlying funds are recorded on the date they are effective (the ex-dividend date), although the funds record certain foreign security dividends on the day they learn of the ex-dividend date. Any distributions from underlying funds are recorded in accordance with the character of the distributions as designated by the underlying funds.

Income received from foreign sources may result in withholding tax. Withholding taxes are accrued at the same time as the related income if the tax rate is fixed and known, unless a tax withheld is reclaimable from the local tax authorities in which case it is recorded as receivable. If the tax rate is not known or estimable, such expense or reclaim receivable is recorded when the net proceeds are received.

In 2015, the Laudus International MarketMasters Fund filed claims to recover taxes previously withheld in certain European Union countries on the basis that those countries had purportedly violated certain provisions in the Treaty on the Functioning of the European Union. These filings are subject to various administrative and judicial proceedings within these countries, and all professional fees associated with these filings have been paid by the investment adviser. For additional details, see Affiliates and Affiliated Transactions in financial note 4, Other Affiliated Transactions.

(e) Expenses:

For funds offering multiple share classes, the net investment income, other than class specific expenses, and the realized and unrealized gains or losses, are allocated daily to each class in proportion to their average daily net assets.

(f) Distributions to Shareholders:

The funds make distributions from net investment income and net realized capital gains, if any, once a year.

(g) Custody Credit:

The funds have an arrangement with their custodian bank, State Street Bank and Trust Company (State Street), under which the funds may receive a credit for their uninvested cash balance to offset their custody fees and accounting fees. The credit amounts, if any, are disclosed in the Statement of Operations as a reduction to the funds’ operating expenses.

(h) Accounting Estimates:

The accounting policies described in this report conform to GAAP. Notwithstanding this, shareholders should understand that in order to follow these principles, fund management has to make estimates and assumptions that affect the information reported in the financial statements. It’s possible that once the results are known, they may turn out to be different from these estimates and these differences may be material.

(i) Federal Income Taxes:

The funds intend to meet federal income and excise tax requirements for regulated investment companies under subchapter M of the Internal Revenue Code, as amended. Accordingly, the funds distribute substantially all of their net investment income and net realized capital gains, if any, to their respective shareholders each year. As long as a fund meets the tax requirements, it is not required to pay federal income tax.

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Financial Notes (continued)

2. Significant Accounting Policies (continued):

(j) Foreign Taxes:

The funds may be subject to foreign taxes (a portion of which may be reclaimable) on income, corporate events, foreign currency exchanges and capital gains on investments. All foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in foreign markets in which the funds invest. These foreign taxes, if any, are paid by the funds and are disclosed in the Statement of Operations. Foreign taxes payable as of October 31, 2017, if any, are reflected in each fund’s Statement of Assets and Liabilities.

(k) Indemnification:

Under the funds’ organizational documents, the officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the funds. In addition, in the normal course of business the funds enter into contracts with their vendors and others that provide general indemnifications. The funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the funds. However, based on experience, the funds expect the risk of loss attributable to these arrangements to be remote.

3. Risk Factors:

Investing in the funds may involve certain risks, as discussed in the funds’ prospectus, including, but not limited to, those described below. Any of these risks could cause an investor to lose money.

Market Risk. Financial markets rise and fall in response to a variety of factors, sometimes rapidly and unpredictably. As with any investment whose performance is tied to these markets, the value of an investment in a fund will fluctuate, which means that an investor could lose money over short or long periods.

Equity Risk. The prices of equity securities rise and fall daily. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. In addition, equity markets tend to move in cycles, which may cause stock prices to fall over short or extended periods of time.

Investment Style Risk. The funds’ investment managers attempt to reduce the impact of the performance of any given investment style by investing in both value and growth style stocks. But whenever value stocks fall out of favor with investors, they may underperform growth stocks, and vice versa.

Market Capitalization Risk. Securities issued by companies of different market capitalizations tend to go in and out of favor based on market and economic conditions. During a period when securities of a particular market capitalization fall behind other types of investments, a fund’s performance could be impacted.

Small-Cap Company Risk. Securities issued by small-cap companies may be riskier than those issued by larger companies, and their prices may move sharply, especially during market upturns and downturns.

Large-Cap Company Risk. Large-cap companies are generally more mature and the securities issued by these companies may not be able to reach the same levels of growth as the securities issued by small- or mid-cap companies.

Mid-Cap Company Risk. Mid-cap companies may be more vulnerable to adverse business or economic events than larger, more established companies and the value of securities issued by these companies may move sharply.

Management Risk. As with all actively managed funds, a fund is subject to the risk that its investment adviser and investment managers will select investments or allocate assets in a manner that could cause the fund to underperform or otherwise not meet its objective. Poor stock selection or a focus on securities in a particular sector may cause a fund to underperform its benchmark or other funds with a similar investment objective.

Foreign Investment Risk. A fund’s investments in securities of foreign issuers involve certain risks that may be greater than those associated with investments in securities of U.S. issuers. These include risks of adverse changes in foreign economic, political, regulatory and other conditions; changes in currency exchange rates or exchange control regulations (including limitations on currency movements and exchanges); the imposition of economic sanctions or other government restrictions; differing accounting, auditing, financial reporting and legal standards and practices; differing securities market structures; and higher transaction costs. These restrictions may negatively impact the value or liquidity of a fund’s investments, and could impair the fund’s ability to meet its investment objective or invest in accordance with its investment strategy. These risks may be heightened in connection with investments in emerging markets. There is a risk that investments in securities denominated in, and/or receiving revenues in, foreign currencies will decline in value relative to the U.S. dollar or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency hedged, resulting in the dollar value of the fund’s investment being adversely affected. To the extent

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Financial Notes (continued)

3. Risk Factors (continued):

the fund’s investments in a single country or a limited number of countries represent a large percentage of the fund’s assets, the fund’s performance may be adversely affected by the economic, political, regulatory and social conditions in those countries, and the fund’s price may be more volatile than the price of a fund that is geographically diversified.

Emerging Markets Risk. Emerging market countries may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. Emerging market countries often have less uniformity in accounting and reporting requirements and greater risk associated with the custody of securities. In addition, the financial stability of issuers (including governments) in emerging market countries may be more precarious than in developed countries. As a result, there may be an increased risk of illiquidity and price volatility associated with a fund’s investments in emerging market countries, which may be magnified by currency fluctuations relative to the U.S. dollar, and, at times, it may be difficult to value such investments.

Currency Risk. As a result of a fund’s investments in securities denominated in, and/or receiving revenues in, foreign currencies, the fund will be subject to currency risk. This is the risk that those currencies will decline in value relative to the U.S. dollar. If such an event occurs, the dollar value of an investment in the fund would be adversely affected.

Derivatives Risk. A fund’s use of derivative instruments involves risks different from, or possibly greater than the risks associated with investing directly in securities and other traditional investments. Certain of these risks, such as liquidity risk, market risk and management risk, are discussed elsewhere in this section. A fund’s use of derivatives is also subject to credit risk, leverage risk, lack of availability risk, valuation risk, correlation risk and tax risk. Lack of availability risk is the risk that suitable derivative transactions may not be available in all circumstances for risk management or other purposes. Credit risk is the risk that the counterparty to a derivatives transaction may not fulfill its obligations. Leverage risk is the risk that a small percentage of assets invested in derivatives can have a disproportionately large impact on a fund. Valuation risk is the risk that a particular derivative may be valued incorrectly. Correlation risk is the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset, rate or index. Tax risk is the risk that the use of derivatives may cause a fund to realize higher amounts of short-term capital gains. A fund’s use of derivatives could reduce the fund’s performance, increase its volatility, and could cause the fund to lose more than the initial amount invested.

Multi-Manager Risk. Although CSIM monitors and seeks to coordinate the overall management of a fund, each investment manager makes investment decisions independently, and it is possible that the investment styles of the investment managers may not complement one another. As a result, a fund’s exposure to a given stock, industry or investment style could unintentionally be smaller or larger than if a fund had a single manager.

Liquidity Risk. A fund may be unable to sell certain securities, such as illiquid securities, readily at a favorable time or price, or a fund may have to sell them at a loss.

Please refer to the funds’ prospectus for a more complete description of the principal risks of investing in the funds.

4. Affiliates and Affiliated Transactions:

Investment Adviser

Charles Schwab Investment Management, Inc. (CSIM or the investment adviser), a wholly owned subsidiary of The Charles Schwab Corporation, serves as each fund’s investment adviser and administrator pursuant to an Investment Advisory and Administration Agreement between CSIM and the trust.

For its advisory and administrative services to the funds, CSIM is entitled to receive an annual fee, payable monthly, based on a percentage of each fund’s average daily net assets as follows:

% of Average Daily Net Assets	Laudus Small-Cap MarketMasters Fund	Laudus International MarketMasters Fund
First $500 million	1.17%	1.29%
$500 million to $1 billion	1.13%	1.275%
Over $1 billion	1.07%	1.25%

For the period ended October 31, 2017, the aggregate advisory fees paid to CSIM by the Laudus Small-Cap MarketMasters Fund and the Laudus International MarketMasters Fund were 1.17% and 1.27%, respectively, as a percentage of each fund’s average daily net assets.

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Financial Notes (continued)

4. Affiliates and Affiliated Transactions (continued):

Shareholder Servicing

The Board has adopted a Shareholder Servicing Plan (the Plan) on behalf of the funds. The Plan enables a fund to bear expenses relating to the provision by financial intermediaries, including Charles Schwab & Co., Inc. (a broker-dealer affiliate of CSIM, Schwab) (together, “service providers”), of certain account maintenance, customer liaison and shareholder services to the current shareholders of the funds.

Pursuant to the Plan, each fund’s shares are subject to an annual shareholder servicing fee of up to 0.20% for Select Shares and 0.25% for Investor Shares. The shareholder servicing fee paid to a particular service provider is made pursuant to its written agreement with Schwab, as distributor of the funds (or, in the case of payments made to Schwab acting as a service provider, pursuant to Schwab’s written agreement with the funds), and a fund will pay no more than 0.20% for Select Shares and 0.25% for Investor Shares of the average annual daily net asset value of the fund shares owned by shareholders holding shares through such service provider. Payments under the Plan are made as described above without regard to whether the fee is more or less than the service provider’s actual cost of providing the services, and if more, such excess may be retained as profit by the service provider.

Expense Limitation

Although these agreements specify certain fees for these services, CSIM and its affiliates have made an additional agreement with the funds, for so long as CSIM serves as the investment adviser to the funds, which may only be amended or terminated with the approval of the Board, to limit the total annual fund operating expenses charged, excluding interest, taxes and certain non-routine expenses (expense limitation). The expense limitation as a percentage of average daily net assets is as follows:

	Laudus Small-Cap MarketMasters Fund	Laudus International MarketMasters Fund
Investor Shares	1.35%	1.40%
Select Shares	1.20%	1.25%

Investments from Affiliates

Certain Schwab funds may own shares of other Schwab funds. The table below reflects the percentage of shares of each fund in this report that are owned by other Schwab funds as of October 31, 2017, as applicable:

	Underlying Funds
	Laudus Small-Cap MarketMasters Fund	Laudus International MarketMasters Fund
Schwab Balanced Fund	20.8%	—%
Schwab Monthly Income Fund - Enhanced Payout	—%	0.5%
Schwab Monthly Income Fund - Maximum Payout	—%	0.1%
Schwab Monthly Income Fund - Moderate Payout	—%	0.3%
Schwab Target 2010 Fund	0.2%	0.2%
Schwab Target 2015 Fund	0.4%	0.3%
Schwab Target 2020 Fund	3.2%	2.5%
Schwab Target 2025 Fund	3.8%	2.8%
Schwab Target 2030 Fund	9.3%	6.0%
Schwab Target 2035 Fund	5.2%	3.0%
Schwab Target 2040 Fund	13.3%	7.3%
Schwab Target 2045 Fund	1.8%	0.9%
Schwab Target 2050 Fund	1.7%	0.8%
Schwab Target 2055 Fund	1.1%	0.5%
Schwab Target 2060 Fund	0.1%	0.0%*

*	Less than 0.05%

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Financial Notes (continued)

4. Affiliates and Affiliated Transactions (continued):

Other Affiliated Transactions

The professional fees related to foreign withholding tax claims discussed in financial note 2 were non-routine expenses. However, the investment adviser agreed to pay these professional fees, subject to reimbursement by the Laudus International MarketMasters Fund to the extent the fund is able to successfully recover taxes withheld in the future. As of October 31, 2017, the balance of professional fees related to foreign withholding tax subject to future reimbursement to the investment adviser was $136,485 for Laudus International MarketMasters Fund.

No other amounts for additional tax reclaims are reflected in the financial statements due to the uncertainty surrounding the ultimate resolution of proceedings, the likelihood of receipt of these claims, and the potential timing of payment.

Interfund Borrowing and Lending

Pursuant to an exemptive order issued by the SEC, the funds may enter into interfund borrowing and lending transactions with other funds in the Fund Complex (for definition refer to Trustees and Officers section). All loans are for temporary or emergency purposes and the interest rate to be charged will be the average of the overnight repurchase agreement rate and the short-term bank loan rate. All loans are subject to numerous conditions designed to ensure fair and equitable treatment of all participating funds. The interfund lending facility is subject to the oversight and periodic review by the Board. The funds had no interfund borrowing or lending activity during the period.

5. Board of Trustees:

The Board may include people who are officers and/or directors of CSIM or its affiliates. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trust was in compliance with these limitations throughout the report period. The trust did not pay any of these interested persons for their services as trustees, but it did pay non-interested persons (independent trustees), as noted on each fund’s Statement of Operations. For information regarding the trustees, please refer to the Trustees and Officers table at the end of this report.

6. Borrowing from Banks:

During the period, the funds were participants with other U.S. registered investment companies managed by CSIM in a joint, syndicated, committed $555 million line of credit (the Syndicated Credit Facility), which matured on October 5, 2017. Under the terms of the Syndicated Credit Facility, in addition to the interest charged on any borrowings by a fund, each fund paid a commitment fee of 0.15% per annum on its proportionate share of the unused portion of the Syndicated Credit Facility. On October 5, 2017, the Syndicated Credit Facility was amended to run for a new 364 day period with an increased line of $605 million and a commitment fee of 0.15% per annum. There were no borrowings from the line of credit during the period.

Effective December 1, 2017, the funds are participants with other U.S. registered investment companies managed by CSIM in a joint, unsecured, uncommitted $500 million line of credit (the Uncommitted Credit Facility), with State Street Bank and Trust Company, which matures on November 30, 2018. Under the terms of the Uncommitted Credit Facility, each fund pays interest on the amount it borrows.

The funds also have access to custodian overdraft facilities. A fund may have utilized the overdraft facility and incurred an interest expense, which is disclosed on the fund’s Statement of Operations, if any. The interest expense is determined based on a negotiated rate above the current Federal Funds Rate.

7. Purchases and Sales/Maturities of Investment Securities:

For the period ended October 31, 2017, purchases and sales/maturities of securities (excluding short-term obligations) were as follows:

	Purchases of Securities	Sales/Maturities of Securities
Laudus Small-Cap MarketMasters Fund	$175,764,480	$184,996,205
Laudus International MarketMasters Fund	1,085,564,987	1,224,536,885

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Financial Notes (continued)

8. Derivatives:

The funds entered into equity index futures contracts during the report period. The funds invested in futures contracts to equitize available cash. The current value and variation margin for futures contracts held at October 31, 2017 are presented on the Portfolio Holdings and Statement of Assets and Liabilities, respectively. The net realized and change in unrealized gains (losses) on futures contracts are presented on the Statement of Operations. Refer to financial note 2(b) for the funds’ accounting policies with respect to futures contracts and financial note 3 for disclosures concerning the risks of investing in futures contracts. During the period ended October 31, 2017, the month-end average notional amounts of futures contracts held by the funds and the month-end average number of contracts held were as follows:

	Notional Amounts	Number of Contracts
Laudus Small-Cap MarketMasters Fund	$1,698,345	23
Laudus International MarketMasters Fund	28,708,132	319

The Laudus International MarketMasters Fund invested in forwards during the report period. The fund invested in forwards in connection with the purchase and sale of portfolio securities to minimize the uncertainty of changes in future foreign currency exchange rates and to hedge exposure to certain currencies. Refer to financial note 2(b) for the fund’s accounting policies with respect to forwards and financial note 3 for disclosures concerning the risks of investing in forwards. During the period ended October 31, 2017, the month-end average forward foreign currency notional amount and the month-end average unrealized appreciation were $26,989,485 and $166,411 respectively.

As of October 31, 2017, the derivatives contracts held by the funds, categorized by primary risk exposure, were:

	Laudus Small-Cap MarketMasters Fund	Laudus International MarketMasters Fund
Asset Derivatives	Fair Value
Equity Index - Futures Contracts¹	$194,801	$345,668
Forward Foreign Currency Exchange Contracts²	—	445,562
Liability Derivatives	Fair Value
Equity Index - Futures Contracts³	$—	$—
Forward Foreign Currency Exchange Contracts⁴	—	—

¹	Includes cumulative unrealized appreciation of futures contracts as reported in the Schedule of Portfolio Holdings. Only current day’s variation margin is reported within the Statement of Assets and Liabilities.
²	Statement of Assets and Liabilities location: Unrealized appreciation on forward foreign currency exchange contracts.
³	Includes cumulative unrealized depreciation of futures contracts as reported in the Schedule of Portfolio Holdings. Only current day’s variation margin is reported within the Statement of Assets and Liabilities.
⁴	Statement of Assets and Liabilities location: Unrealized depreciation on forward foreign currency exchange contracts.

The effects of the derivatives held by the funds in the Statement of Operations for the period ended October 31, 2017 were:

	Laudus Small-Cap MarketMasters Fund	Laudus International MarketMasters Fund
Equity Index Futures Contracts
Realized Gains (Losses)¹	$150,066	$4,610,038
Change in Unrealized Appreciation (Depreciation)²	213,604	809,166
Forward Foreign Currency Exchange Contracts
Realized Gains (Losses)¹	$—	$832,199
Change in Unrealized Appreciation (Depreciation)²	—	221,841

¹	Statement of Operations location: Net realized gains (losses) on futures contracts and net realized gains (losses) on foreign currency transactions.
²	Statement of Operations location: Net change in unrealized appreciation (depreciation) on futures contracts and net change in unrealized appreciation (depreciation) on foreign currency translations.

The funds’ forwards are entered into pursuant to International Swaps and Derivatives Association, Inc. (ISDA) agreements which govern certain terms of derivative transactions. ISDA agreements typically contain, among other things, master netting provisions in the event of a default or other termination event. Master netting provisions allow the funds and the counterparty, in the event of a default or other termination event, to offset payable and receivable amounts for each party related to derivative contracts to one net amount payable by either the funds or the counterparty. The Laudus International MarketMasters Fund’s forwards, which are

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Financial Notes (continued)

8. Derivatives (continued):

reported gross in the Statement of Assets and Liabilities, are presented in the table below. The following table presents the fund’s forwards, net of amounts available for offset under a master netting agreement and net of any related collateral received by the fund for assets and pledged by the fund for liabilities as of October 31, 2017.

		Gross Amounts Not Offset in the Statement of Assets & Liabilities
Counterparty	Net Amounts of Assets Presented in the Statement of Assets and Liabilities	Financial Instruments	Cash Collateral Received	Net Amounts^(a)
State Street Bank & Trust Co.	$445,562	$—	$—	$445,562
Total	$445,562	$—	$—	$445,562

^a	Represents the net amount due from the counterparty in the event of default.

9. Redemption Fee:

Prior to February 28, 2017, the funds charged a 2.00% redemption fee on shares sold or exchanged within 30 days of the original purchase date. Such amounts were netted against redemption proceeds on the Statement of Changes in Net Assets. Effective February 28, 2017, the funds no longer charge redemption fees. The redemption fees charged during the current and prior periods were as follows:

	Current Period (11/1/16-10/31/17)	Prior Period (11/1/15-10/31/16)
Laudus Small-Cap MarketMasters Fund	$202	$110
Laudus International MarketMasters Fund	2,865	11,152

10. Federal Income Taxes:

As of October 31, 2017, the tax basis cost of the funds’ investments and gross unrealized appreciation and depreciation were as follows:

	Laudus Small-Cap MarketMasters Fund	Laudus International MarketMasters Fund
Tax cost	$164,711,539	$1,349,346,602
Gross unrealized appreciation	$30,972,366	$419,674,850
Gross unrealized depreciation	(9,056,358)	(24,077,451)
Net unrealized appreciation (depreciation)	$21,916,008	$395,597,399

As of October 31, 2017, the components of distributable earnings on a tax basis were as follows:

	Laudus Small-Cap MarketMasters Fund	Laudus International MarketMasters Fund
Undistributed ordinary income	$10,688,920	$35,453,965
Undistributed long-term capital gains	11,670,014	42,268,959
Net unrealized appreciation (depreciation) on investments	21,916,008	395,597,399
Net other unrealized appreciation (depreciation)	—	(501,590)
Total	$44,274,942	$472,818,733

The primary differences between book basis and tax basis unrealized appreciation or unrealized depreciation of investments are the tax deferral of losses on wash sales, realization for tax purposes of unrealized gains (losses) on futures contracts and the realization for tax purposes of unrealized appreciation on investments in Passive Foreign Investment Companies (PFIC) and partnership investments. The tax cost of the funds’ investments, disclosed above, have been adjusted from their book amounts to reflect these unrealized appreciation or depreciation differences, as applicable.

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Financial Notes (continued)

10. Federal Income Taxes (continued):

Capital loss carryforwards may be used to offset future realized capital gains for federal income tax purposes. As of October 31, 2017, the funds had no capital loss carryforwards.

For the year ended October 31, 2017, the funds had capital loss carryforwards utilized as follows:

	Laudus Small-Cap MarketMasters Fund	Laudus International MarketMasters Fund
Capital loss carryforwards utilized	$—	$13,160,449

The tax basis components of distributions paid during the current and prior fiscal years were as follows:

	Laudus Small-Cap MarketMasters Fund	Laudus International MarketMasters Fund
Current period distributions
Ordinary income	$374,652	$12,055,543
Long-term capital gains	1,680,089	—
Prior period distributions
Ordinary income	$1,923,995	$24,918,086
Long-term capital gains	8,100,932	100,978,405

Distributions paid to shareholders are based on net investment income and net realized gains determined on a tax basis, which may differ from net investment income and net realized gains for financial reporting purposes. These differences reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.

Permanent book and tax basis differences may result in reclassifications between components of net assets as required. The adjustments will have no impact on net assets or the results of operations. As of October 31, 2017, the funds made the following reclassifications:

	Laudus Small-Cap MarketMasters Fund	Laudus International MarketMasters Fund
Capital shares	$35	$—
Undistributed net investment income	(1,270)	1,686,954
Net realized capital gains (losses)	1,235	(1,686,954)

As of October 31, 2017, management has reviewed the tax positions for open periods (for federal purposes, three years from the date of filing and for state purposes, four years from the date of filing) as applicable to the funds, and has determined that no provision for income tax is required in the funds’ financial statements. The funds recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the period ended October 31, 2017, the funds did not incur any interest or penalties.

11. Custody Out-of-Pocket Fee Reimbursement:

In December 2015, State Street, the funds’ custodian, identified inconsistencies in the way in which clients were invoiced for categories of expenses, particularly those deemed out-of-pocket costs, during an 18-year period going back to 1998. The issue was the result of inaccurate billing rates that were not subsequently reviewed or adjusted. The amount of the difference in what was charged and what should have been charged, plus interest, was paid to the funds during the period ended October 31, 2017 as a reimbursement. State Street made payment to a fund if the inaccurate billing occurred when the fund’s operating expenses were not contractually waived by CSIM. If CSIM was contractually waiving fees when the inaccurate billing occurred, State Street made that payment directly to CSIM to the extent of amounts waived by CSIM; any additional amounts were applied to the fund. The

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Financial Notes (continued)

11. Custody Out-of-Pocket Fee Reimbursement (continued):

amounts applied to each fund were recognized as a change in accounting estimate. This resulted in a decrease in Net expenses and an overall increase in Net assets. The payment is netted with Custodian fees in each fund’s Statement of Operations. Below are the amounts that were reimbursed to the funds and to CSIM for the period ended October 31, 2017:

	State Street to Fund	State Street to CSIM
Laudus Small-Cap MarketMasters Fund
Investor Shares	$152	$4,911
Select Shares	266	8,592
Laudus International MarketMasters Fund
Investor Shares	15,810	15,185
Select Shares	37,943	36,843

12. Subsequent Events:

Management has determined there are no subsequent events or transactions through the date the financial statements were issued that would have materially impacted the financial statements as presented.

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Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Schwab Capital Trust and Shareholders of Laudus Small-Cap MarketMasters Fund and Laudus International MarketMasters Fund

In our opinion, the accompanying statements of assets and liabilities, including the portfolio holdings, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Laudus Small-Cap MarketMasters Fund and Laudus International MarketMasters Fund (two of the funds constituting Schwab Capital Trust, hereafter referred to as the “Funds”) as of October 31, 2017, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities as of October 31, 2017 by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
San Francisco, California
December 15, 2017

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Other Federal Tax Information (unaudited)

The Laudus International MarketMasters Fund elects to pass through, under section 853 of the Internal Revenue Code, the foreign tax credit of $3,534,541 to its shareholders for the year ended October 31, 2017. The respective foreign source income on the fund is $37,621,001.

For corporate shareholders, the following percentage of the funds’ dividend distributions paid during the fiscal year ended October 31, 2017, qualify for the corporate dividends received deduction:

	Percentage
Laudus Small-Cap MarketMasters Fund	63.66
Laudus International MarketMasters Fund	—

For the fiscal year ended October 31, 2017, the funds designate the following amounts of the dividend distributions as qualified dividends for the purpose of the maximum rate under 1(h)(ii) of the Internal Revenue Code. Shareholders will be notified in January 2018 via IRS form 1099 of the amounts for use in preparing their 2017 income tax return.


Laudus Small-Cap MarketMasters Fund	$239,989
Laudus International MarketMasters Fund	15,028,786

Under section 852(b)(3)(C) of the Internal Revenue Code, the funds hereby designate the following amounts as long-term capital gain dividends for the fiscal year ended October 31, 2017:


Laudus Small-Cap MarketMasters Fund	$1,680,089
Laudus International MarketMasters Fund	—

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Investment Advisory and Sub-Advisory Agreement Approval

The Investment Company Act of 1940, as amended, requires that initial approval of, as well as the continuation of, a fund’s investment advisory agreement be specifically approved (1) by the vote of the trustees or by a vote of the shareholders of the fund, and (2) by the vote of a majority of the trustees who are not parties to the investment advisory agreement or “interested persons” of any party (the Independent Trustees), cast in person at a meeting called for the purpose of voting on such approval. In connection with such approvals, the fund’s trustees must request and evaluate, and the investment adviser is required to furnish, such information as may be reasonably necessary to evaluate the terms of the investment advisory agreement.

The Board of Trustees (the Board or the Trustees, as appropriate) calls and holds one or more meetings each year that are dedicated, in whole or in part, to considering whether to renew the investment advisory and administration agreement between Schwab Capital Trust (the Trust) and Charles Schwab Investment Management, Inc. (CSIM) with respect to the existing funds in the Trust, including Laudus Small-Cap MarketMasters Fund and Laudus International MarketMasters Fund (each, a Fund and collectively, the Funds), and the individual sub-advisory agreements between CSIM and The Boston Company Asset Management, LLC, Mellon Capital Management Corp., and Wellington Management Company LLP relating to Laudus Small-Cap MarketMasters Fund; and CSIM and American Century Investment Management, Inc., Harris Associates L.P., Mellon Capital Management Corp., Mondrian Investment Partners Limited and William Blair Investment Management, LLC, relating to the Laudus International MarketMasters Fund (collectively, the Sub-Advisers). Such investment advisory and administration agreement and sub-advisory agreements are collectively referred to herein as the Agreements. The Trustees also review certain other agreements pursuant to which CSIM provides investment advisory services to certain other registered investment companies. In preparation for the meeting(s), the Board requests and reviews a wide variety of materials provided by CSIM and the Sub-Advisers, including information about their affiliates, personnel, business goals and priorities, profitability, third-party oversight, corporate structure and operations. The Board also receives data provided by an independent provider of investment company data. This information is in addition to the detailed information about the Funds that the Board reviews during the course of each year, including information that relates to the Fund’s operations and performance, legal and compliance matters, risk management, portfolio turnover and sales and marketing activity. The Independent Trustees receive advice from Independent Trustees’ legal counsel, including a memorandum regarding the responsibilities of trustees for the approval of investment advisory agreements. In addition, the Independent

Trustees meet in executive session outside the presence of Fund management and participate in question and answer sessions with representatives of CSIM. The Board also discusses with CSIM the Funds’ operations and CSIM’s ability, consistent with the “manager of managers” structure of each of the Funds to (i) identify and recommend to the Trustees sub-advisers for each Fund, (ii) monitor and oversee the performance and investment capabilities of each sub-adviser, and (iii) recommend the replacement of a sub-adviser when appropriate. As part of the renewal process, Independent Trustees’ legal counsel sends an information request letter to CSIM and CSIM sends an information request letter to each of the Sub-Advisers seeking certain relevant information. The responses by CSIM and the Sub-Advisers are provided to the Trustees for their review prior to their meeting, and the Trustees are provided with the opportunity to request any additional materials.

The Board’s approval of the Agreements with respect to the Funds was based on consideration and evaluation of a variety of specific factors discussed at these meetings and at prior meetings, including:

1.	the nature, extent and quality of the services provided to the Funds under the Agreements, including the resources of CSIM and its affiliates, and the Sub-Advisers, dedicated to the Funds;
2.	each Fund’s investment and administration agreement performance and how it compared to that of certain other comparable mutual funds;
3.	each Fund’s expenses and how those expenses compared to those of certain other comparable mutual funds, collective trust funds and other types of accounts;
4.	the profitability of CSIM and its affiliates, including Charles Schwab & Co., Inc. (Schwab), with respect to each Fund, including both direct and indirect benefits accruing to CSIM and its affiliates, as well as the profitability of the Sub-Advisers; and
5.	the extent to which economies of scale would be realized as the Funds grow and whether fee levels in the Agreements reflect those economies of scale for the benefit of Fund investors.

Nature, Extent and Quality of Services. The Board considered the nature, extent and quality of the services provided by CSIM

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to the Funds and the resources of CSIM and its affiliates dedicated to the Funds. In this regard, the Trustees evaluated, among other things, CSIM’s experience, track record, compliance program, resources dedicated to hiring and retaining qualified personnel, and information security resources. The Trustees also considered information provided by CSIM relating to each Fund’s portfolio management team, portfolio strategy and risk oversight structure, and internal investment guidelines. The Trustees also considered investments in CSIM’s mutual fund infrastructure, Schwab’s wide range of products, services, and channel alternatives such as investment and research tools, internet access, and an array of account features that benefit the Funds and certain of their shareholders. The Trustees also considered Schwab’s reputation as a full service brokerage firm and its overall financial condition. In addition, the Trustees considered that many of the Funds’ shareholders are also brokerage clients of Schwab. The Board also considered the nature, extent and quality of the sub-advisory services provided by the Sub-Advisers to the Funds and the resources each dedicates to the Funds. Following such evaluation, the Board concluded, within the context of its full deliberations, that the nature, extent and quality of services provided by CSIM and the Sub-Advisers to the Funds and the resources of CSIM, its affiliates, and the Sub-Advisers dedicated to the Funds supported renewal of the Agreements with respect to the Funds.

Fund Performance. The Board considered Fund performance in determining whether to renew the Agreements with respect to the Funds. Specifically, the Trustees considered each Fund’s performance relative to a peer category of other mutual funds and appropriate indices/benchmarks, in light of total return, and market trends. As part of this review, the Trustees considered the composition of the peer category, selection criteria and the reputation of the independent provider of investment company data who prepared the peer category analysis. In evaluating the performance of each Fund, the Trustees considered the risk profile for such Fund and the appropriateness of the benchmark used to compare the performance of each Fund. In addition, the Trustees considered whether irrespective of relative performance, each Sub-Adviser’s absolute performance was consistent with expectations for such Sub-Adviser’s unique investment methodology. The Trustees further considered the level of Fund performance in the context of their review of Fund expenses and adviser and Sub-Adviser profitability discussed below and also noted that performance is reviewed throughout the year by a designated committee of the Board and by the Board. Although Laudus Small-Cap MarketMasters Fund had performance that lagged that of a relevant peer group for certain (although not necessarily all) periods considered, the Board concluded that other factors relevant to performance supported renewal of the Agreements with respect to Laudus Small-Cap MarketMasters Fund, including that the underperformance was attributable, to a significant extent, to investment decisions by CSIM and the Sub-Advisers that were

reasonable and consistent with the investment objective and policies of Laudus Small-Cap MarketMasters Fund and that CSIM and the Sub-Advisers had taken steps designed to help improve performance. Following such evaluation the Board concluded, within the context of its full deliberations, that the performance of the Funds supported renewal of the Agreements with respect to the Funds.

Fund Expenses. With respect to the Funds’ expenses, the Trustees considered the rate of compensation called for by the Agreements, and each Fund’s net operating expense ratio, in each case, in comparison to those of a peer group of mutual funds, such peer groups and comparisons having been selected and calculated by an independent provider of investment company data. The Trustees considered the effects of CSIM’s and Schwab’s practice of voluntarily waiving management and other fees to prevent total Fund expenses from exceeding a specified cap. The Trustees also considered CSIM’s contractual commitment to keep each Fund’s expense cap for so long as CSIM serves as the adviser to such Fund. The Trustees also considered fees charged by CSIM and the Sub-Advisers to other mutual funds, and to other types of accounts, which may include collective trust funds and separately managed accounts, but, with respect to such other types of accounts, accorded less weight to such comparisons due to the different legal, regulatory, compliance and operating features of mutual funds as compared to these other types of accounts, and any differences in the nature and scope of the services CSIM provides to these other accounts, as well as differences in the market for these types of accounts. Following such evaluation, the Board concluded, within the context of its full deliberations, that the expenses of the Funds are reasonable and supported renewal of the Agreements with respect to the Funds.

Profitability. The Trustees considered the compensation flowing to CSIM and its affiliates, directly or indirectly, and reviewed profitability on a pre-tax basis, without regard to distribution expenses. In this connection, the Trustees reviewed management’s profitability analyses and methodology. The Trustees also reviewed profitability of CSIM relating to the Schwab fund complex as a whole, noting the benefit to Fund shareholders of being part of the Schwab fund complex, including the allocations of certain fixed costs across the funds in the complex. The Trustees also considered any other benefits derived by CSIM from its relationship with the Funds, such as whether, by virtue of its management of the Funds, CSIM obtains investment information or other research resources that aid it in providing advisory services to other clients. With respect to CSIM, the Trustees considered whether the varied levels of compensation and profitability under the Agreements and other service agreements were reasonable and justified in light of the quality of all services rendered to each Fund by CSIM, and its respective affiliates. The Trustees also considered the compensation flowing to the Sub-Advisers, directly or indirectly. The Trustees also considered any other benefits derived by the Sub-Advisers

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from their relationship with the Funds, such as whether, by virtue of its management of the Funds, any Sub-Adviser obtains investment information or other research resources that aid it in providing advisory services to other clients. With respect to the Sub-Advisers, the Trustees considered whether the varied levels of compensation and profitability under the Agreements and other service agreements were reasonable and justified in light of the quality of all services rendered to each Fund by the Sub-Advisers, and their respective affiliates. The Board also considered the profitability of the Sub-Advisers with respect to the sub-advisory services they provide to the Funds, although, when doing so, the Board took into account the fact that the Sub-Advisers are compensated by CSIM, and not by the Funds directly, and such compensation with respect to any Sub-Adviser reflects an arms-length negotiation between the Sub-Adviser and CSIM. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the profitability of CSIM and the Sub-Advisers is reasonable and supported renewal of the Agreements with respect to the Funds.

expenses, the Trustees considered that CSIM and Schwab have committed resources to minimize the effects on shareholders of diseconomies of scale during periods when Fund assets were relatively small through their contractual expense waivers. For example, such diseconomies of scale may particularly affect newer funds or funds with investment strategies that are from time to time out of favor, but shareholders may benefit from the continued availability of such funds at subsidized expense levels. The Trustees also considered the existing contractual investment advisory fee schedules relating to the Funds that, in each case, include lower fees at higher graduated asset levels. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the Funds obtain reasonable benefit from economies of scale.

In the course of their deliberations, the Trustees did not identify any particular information or factor that was all important or controlling. Based on the Trustees’ deliberations and their evaluation of the information described above, the Board, including all of the Independent Trustees, approved the continuation of the Agreements with respect to the Funds and concluded that the compensation under the Agreements with respect to the Funds is fair and reasonable in light of such services and expenses and such other matters as the Trustees have considered to be relevant in the exercise of their reasonable judgment.

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Trustees and Officers

The tables below give information about the trustees and officers of Schwab Capital Trust, which includes the funds covered in this report. The “Fund Complex” includes The Charles Schwab Family of Funds, Schwab Capital Trust, Schwab Investments, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust. The Fund Complex includes 108 funds.

The address for all trustees and officers is 211 Main Street, San Francisco, CA 94105. You can find more information about the trustees and officers in the funds’ Statement of Additional Information, which is available free by calling 1-877-824-5615.

Independent Trustees
Name, Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served¹)	Principal Occupations During the Past Five Years	Number of Portfolios in Fund Complex Overseen by the Trustee	Other Directorships
Robert W. Burns 1959 Trustee (Trustee of Schwab Strategic Trust since 2009; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016)	Retired/Private Investor (Jan. 2009 – present). Formerly, Managing Director, Pacific Investment Management Company, LLC (PIMCO) (investment management firm) and President, PIMCO Funds.	108	Director, PS Business Parks, Inc. (2005 – 2012)
John F. Cogan 1947 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Laudus Trust since 2010; Schwab Strategic Trust since 2016)	Senior Fellow, The Hoover Institution at Stanford University (public policy think tank) (Oct. 1979 – present); Senior Fellow, Stanford Institute for Economic Policy Research (2000 – present); Professor of Public Policy, Stanford University (1994 – 2015).	108	Director, Gilead Sciences, Inc. (2005 – present)
Stephen Timothy Kochis 1946 Trustee (Trustee of Schwab Strategic Trust since 2012; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016)	CEO and Owner, Kochis Global (wealth management consulting) (May 2012 – present); Chairman and CEO, Aspiriant, LLC (wealth management) (Jan. 2008 – Apr. 2012).	108	None
David L. Mahoney 1954 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016)	Private Investor.	108	Director, Symantec Corporation (2003 – present) Director, Corcept Therapeutics Incorporated (2004 – present) Director, Adamas Pharmaceuticals, Inc. (2009 – present)

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Independent Trustees (continued)
Name, Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served¹)	Principal Occupations During the Past Five Years	Number of Portfolios in Fund Complex Overseen by the Trustee	Other Directorships
Kiran M. Patel 1948 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016)	Retired. Executive Vice President and General Manager of Small Business Group, Intuit, Inc. (financial software and services firm for consumers and small businesses) (Dec. 2008 – Sept. 2013).	108	Director, KLA-Tencor Corporation (2008 – present)
Kimberly S. Patmore 1956 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016)	Consultant, Patmore Management Consulting (management consulting) (2008 – present).	108	None
Charles A. Ruffel 1956 Trustee (Trustee of Schwab Strategic Trust since 2009; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2015)	Co-Chief Executive Officer, Kudu Investment Management, LLC (financial services) (Jan. 2015 – present); Partner, Kudu Advisors, LLC (financial services) (June 2008 – Jan. 2015); Advisor, Asset International, Inc. (publisher of financial services information) (Aug. 2008 – Jan. 2015).	108	None
Gerald B. Smith 1950 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2000; Laudus Trust since 2010; Schwab Strategic Trust since 2016)	Chairman, Chief Executive Officer and Founder of Smith Graham & Co. (investment advisors) (Mar. 1990 – present).	108	Director, Eaton (2012 – present) Director and Chairman of the Audit Committee, Oneok Partners LP (2003 – 2013) Director, Oneok, Inc. (2009 – 2013) Lead Independent Director, Board of Cooper Industries (2002 – 2012)
Joseph H. Wender 1944 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Laudus Trust since 2010; Schwab Strategic Trust since 2016)	Senior Consultant, Goldman Sachs & Co., Inc. (investment banking and securities firm) (Jan. 2008 – present); Partner, Colgin Partners, LLC (vineyards) (Feb. 1998 – present).	108	Board Member and Chairman of the Audit Committee, Ionis Pharmaceuticals (1994 – present) Lead Independent Director and Chair of Audit Committee, OUTFRONT Media Inc. (2014 – present)

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Interested Trustees
Name, Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served¹)	Principal Occupations During the Past Five Years	Number of Portfolios in Fund Complex Overseen by the Trustee	Other Directorships
Walter W. Bettinger II² 1960 Chairman and Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Schwab Strategic Trust since 2009; Laudus Trust since 2010)	Director, President and Chief Executive Officer, The Charles Schwab Corporation (Oct. 2008 – present); President and Chief Executive Officer (Oct. 2008 – present), Director (May 2008 – present), Charles Schwab & Co., Inc.; Director, Charles Schwab Bank (Apr. 2006 – present); Director, Schwab Holdings, Inc. (May 2008 – present); and Director, Charles Schwab Investment Management, Inc. (July 2016 – present).	108	Director, The Charles Schwab Corporation (2008 – present)
Marie A. Chandoha² 1961 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016)	Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer (Sept. 2010 – Oct. 2011), Charles Schwab Investment Management, Inc.; Trustee (Jan. 2016 – present), President, Chief Executive Officer (Dec. 2010 – present), and Chief Investment Officer (Sept. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; Director, Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited (Jan. 2011 – present); Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (investment management firm) (Mar. 2007 – Aug. 2010).	108	None
Joseph R. Martinetto² 1962 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016)	Senior Executive Vice President (July 2015 – present), Chief Financial Officer (July 2015 – May 2017), Executive Vice President and Chief Financial Officer (May 2007 – July 2015), The Charles Schwab Corporation and Charles Schwab & Co., Inc.; Director, Charles Schwab & Co., Inc. (May 2007 – present); Director (Apr. 2010 – present) and Chief Executive Officer (July 2013 – Apr. 2015), Charles Schwab Bank; Director (May 2007 – present), Chief Financial Officer (May 2007 – May 2017), Senior Executive Vice President (Feb. 2016 – present), and Executive Vice President (May 2007 – Feb. 2016), Schwab Holdings, Inc.	108	None

Officers of the Trust
Name, Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served³)	Principal Occupations During the Past Five Years
Marie A. Chandoha 1961 President and Chief Executive Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2010)	Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer (Sept. 2010 – Oct. 2011), Charles Schwab Investment Management, Inc.; Trustee (Jan. 2016 – present), President, Chief Executive Officer (Dec. 2010 – present), and Chief Investment Officer (Sept. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; Director, Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited (Jan. 2011 – present); Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (investment management firm) (Mar. 2007 – Aug. 2010).
Mark Fischer 1970 Treasurer and Chief Financial Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2013)	Treasurer and Chief Financial Officer, Schwab Funds, Laudus Funds and Schwab ETFs (Jan. 2016 – present); Assistant Treasurer, Schwab Funds and Laudus Funds (Dec. 2013 – Dec. 2015), Schwab ETFs (Nov. 2013 – Dec. 2015); Vice President, Charles Schwab Investment Management, Inc. (Oct. 2013 – present); Executive Director, J.P. Morgan Investor Services (Apr. 2011 – Sept. 2013); Assistant Treasurer, Massachusetts Financial Service Investment Management (May 2005 – Mar. 2011).

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Officers of the Trust (continued)
Name, Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served³)	Principal Occupations During the Past Five Years
George Pereira 1964 Senior Vice President and Chief Operating Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2004; Laudus Trust since 2006; Schwab Strategic Trust since 2009)	Senior Vice President and Chief Financial Officer (Nov. 2004 – present), Chief Operating Officer (Jan. 2011 – present), Charles Schwab Investment Management, Inc.; Senior Vice President and Chief Operating Officer (Jan. 2016 – present), Treasurer and Chief Financial Officer, Laudus Funds (June 2006 – Dec. 2015); Treasurer and Principal Financial Officer, Schwab Funds (Nov. 2004 – Dec. 2015) and Schwab ETFs (Oct. 2009 – Dec. 2015); Director, Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited (Apr. 2005 – present).
Omar Aguilar 1970 Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011)	Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies, Charles Schwab Investment Management, Inc. (Apr. 2011 – present); Senior Vice President and Chief Investment Officer – Equities, Schwab Funds, Laudus Funds and Schwab ETFs (June 2011 – present); Head of the Portfolio Management Group and Vice President of Portfolio Management, Financial Engines, Inc. (investment management firm) (May 2009 – Apr. 2011); Head of Quantitative Equity, ING Investment Management (July 2004 – Jan. 2009).
Brett Wander 1961 Senior Vice President and Chief Investment Officer – Fixed Income (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011)	Senior Vice President and Chief Investment Officer – Fixed Income, Charles Schwab Investment Management, Inc. (Apr. 2011 – present); Senior Vice President and Chief Investment Officer – Fixed Income, Schwab Funds, Laudus Funds and Schwab ETFs (June 2011 – present); Senior Managing Director, Global Head of Active Fixed-Income Strategies, State Street Global Advisors (Jan. 2008 – Oct. 2010); Director of Alpha Strategies Loomis, Sayles & Company (investment management firm) (Apr. 2006 – Jan. 2008).
David Lekich 1964 Chief Legal Officer and Secretary, Schwab Funds and Schwab ETFs Vice President and Assistant Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011)	Senior Vice President (Sept. 2011 – present), Vice President (Mar. 2004 – Sept. 2011), Charles Schwab & Co., Inc.; Senior Vice President and Chief Counsel (Sept. 2011 – present), Vice President (Jan. 2011 – Sept. 2011), Charles Schwab Investment Management, Inc.; Secretary (Apr. 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab Funds; Vice President and Assistant Clerk, Laudus Funds (Apr. 2011 – present); Secretary (May 2011 – present) and Chief Legal Officer (Nov. 2011 – present), Schwab ETFs.
Catherine MacGregor 1964 Vice President and Assistant Secretary, Schwab Funds and Schwab ETFs Chief Legal Officer, Vice President and Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2005; Schwab Strategic Trust since 2009)	Vice President, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. (July 2005 – present); Vice President (Dec. 2005 – present), Chief Legal Officer and Clerk (Mar. 2007 – present), Laudus Funds; Vice President (Nov. 2005 – present) and Assistant Secretary (June 2007 – present), Schwab Funds; Vice President and Assistant Secretary, Schwab ETFs (Oct. 2009 – present).

¹	Each Trustee shall hold office until the election and qualification of his or her successor, or until he or she dies, resigns or is removed. The retirement policy requires that each independent trustee retire by December 31 of the year in which the Trustee turns 74 or the Trustee’s twentieth year of service as an independent trustee on any trust in the Fund Complex, whichever occurs first.
²	Mr. Bettinger, Ms. Chandoha and Mr. Martinetto are Interested Trustees. Mr. Bettinger is an Interested Trustee because he owns stock of The Charles Schwab Corporation (CSC), the parent company of Charles Schwab Investment Management, Inc. (CSIM), the investment adviser for the trusts in the Fund Complex, is an employee and director of Charles Schwab & Co., Inc. (CS&Co), the principal underwriter for The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios, and is a director of the investment adviser for the trusts in the Fund Complex. Ms. Chandoha is an Interested Trustee because she owns stock of CSC and is an employee and director of CSIM. Mr. Martinetto is an Interested Trustee because he owns stock of CSC and is an employee and director of CS&Co.
³	The President, Treasurer and Secretary/Clerk hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board.

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Glossary

asset allocation The practice of dividing a portfolio among different asset classes, with each asset class assigned a particular percentage.

asset class A group of securities with similar structure and basic characteristics. Stocks, bonds and cash are the three main examples of asset classes.

Bloomberg Barclays U.S. Aggregate Bond Index An index that represents securities that are SEC registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. The index excludes certain types of securities, including state and local government series bonds, structured notes embedded with swaps or other special features, private placements, floating rate securities, inflation-linked bonds and Eurobonds.

Bloomberg Barclays U.S. Treasury Bills 1 – 3 Month Index An index that includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months but more than 1 month, are rated investment grade and have $250 million or more of outstanding face value. It excludes zero-coupon STRIPS.

bond A security representing a loan from the investor to the issuer. A bond typically pays interest at a fixed rate (the coupon rate) until a specified date (the maturity date), at which time the issuer returns the money borrowed (principal or face value) to the bondholder. Because of their structure, bonds are sometimes called “fixed income securities” or “debt securities.”

An individual bond is subject to the credit risk of the issuer. Changes in interest rates can affect a bond’s market value prior to call or maturity. There is no guarantee that a bond’s yield to call or maturity will provide a positive return over the rate of inflation.

bond fund A bond fund is subject to the same credit, interest rate, and inflation risks as bonds. In addition, a bond fund incurs ongoing fees and expenses. A bond fund’s net asset value will fluctuate with the price of the underlying bonds and the portfolio turnover activity; return of principal is not guaranteed.

cap, capitalization See “market cap.”

capital gain, capital loss the difference between the amount paid for an investment and its value at a later time. If the investment has been sold, the capital gain or loss is considered a realized gain or loss. If the investment is still held, the capital gain or loss is considered unrealized appreciation or depreciation.

expense ratio The amount that is taken from a mutual fund’s assets each year to cover the fund’s operating expenses. An expense ratio of 0.50% means that a fund’s expenses amount to half of one percent of its average net assets a year.

market cap, market capitalization The value of a company as determined by the total value of all shares of its stock outstanding.

MSCI EAFE Index (Net) A free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets in Europe, Australasia, and the Far East. The Net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes; returns are calculated applying dividend withholding rates applicable to non-resident persons who do not benefit from double taxation treaties.

net asset value (NAV) The value of one share of a mutual fund. NAV is calculated by taking the fund’s total assets, subtracting liabilities, and dividing by the number of shares outstanding.

outstanding shares, shares outstanding When speaking of a company or mutual fund, indicates all shares currently held by investors.

price-to-book ratio (P/B) The market price of a company’s stock compared with its “book value.” A mutual fund’s P/B is the weighted average of the P/B of all stocks in the fund’s portfolio.

price-to-earnings ratio (P/E) The market price of a company’s stock compared with earnings over the past year. A mutual fund’s P/E is the weighted average of the P/E of all stocks in the fund’s portfolio.

restricted and illiquid securities Restricted securities are securities that are subject to legal restrictions on their sale. Restricted securities generally can be sold in privately negotiated transactions, pursuant to an exemption from registration under the Securities Act of 1933 (the 1933 Act), or in a registered public offering. Certain restricted securities, such as Section 4(a)(2) commercial paper and Rule 144A securities under the 1933 Act, may be considered to be liquid if they meet the criteria for liquidity established by the Board. Illiquid securities generally are any securities that cannot be disposed of promptly and in the ordinary course of business at approximately the amount at which a fund has valued the instruments. The liquidity of a fund’s investments is monitored under the supervision and direction of the Board. Investments currently not considered liquid include repurchase agreements not maturing within seven days and certain restricted securities.

return on equity (ROE) The average yearly rate of return for each dollar of investors’ money, measured over the past five years.

Russell 2000 Index An index that measures the performance of the 2,000 smallest companies in the Russell 3000 Index. The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market.

S&P 500 Index An index that is designed to measure the performance of 500 leading publicly traded companies from a broad range of industries.

stock A share of ownership, or equity, in the issuing company.

total return The percentage that an investor would have earned or lost on an investment in the fund assuming dividends and distributions were reinvested.

weighted average For mutual funds, an average that gives the same weight to each security as the security represents in the fund’s portfolio.

yield The income paid out by an investment, expressed as a percentage of the investment’s market value.

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Laudus MarketMasters Funds

PRIVACY NOTICE
THIS IS NOT PART OF THE SHAREHOLDER REPORT

A Commitment to Your Privacy

Your Privacy Is Not for Sale

We do not and will not sell your personal information to anyone, for any reason.

We are committed to protecting the privacy of information we maintain about you. Below are details about our commitment, including the types of information we collect and how we use and share that information. This Privacy Notice applies to you only if you are an individual who invests directly in the funds by placing orders through the funds’ transfer agent. If you place orders through your brokerage account at Charles Schwab & Co., Inc. or an account with another broker-dealer, investment advisor, 401(k) plan, employee benefit plan, administrator, bank or other financial intermediary, you are covered by the privacy policies of that financial institution and should consult those policies.

How We Collect Information About You

We collect personal information about you in a number of ways.

• APPLICATION AND REGISTRATION
INFORMATION.

We collect personal information from you when you open an account or utilize one of our services. We may also collect information about you from third parties such as consumer reporting agencies to verify your identity. The information we collect may include personal information, including your Social Security number, as well as details about your interests, investments and investment experience.

• TRANSACTION AND EXPERIENCE
INFORMATION.

Once your account has been opened, we collect and maintain personal information about your account activity, including your transactions, balances, positions and history. This information allows us to administer your account and provide the services you have requested.

• WEBSITE USAGE.

When you visit our websites, we may use devices known as “cookies,” graphic interchange format files (GIFs), or other similar web tools to enhance your web experience. These tools help us to recognize you, maintain your web session, and provide a more personalized experience. To learn more, please go to www.schwab.com/privacy.

How We Share and Use Your Information

We provide access to information about you to our affiliated companies, outside companies and other third parties in certain limited circumstances, including:

• to help us process transactions for your account;

• when we use other companies to provide services for us, such as printing and mailing your account statements;

• when we believe that disclosure is required or permitted under law (for example, to cooperate with regulators or law enforcement, resolve consumer disputes, perform credit/authentication checks, or for risk control).

State Laws

We will comply with state laws that apply to the disclosure or use of information about you.

Safeguarding Your Information — Security Is a
Partnership

We take precautions to ensure the information we collect about you is protected and is accessed only by authorized individuals or organizations.

Companies we use to provide support services are not allowed to use information about our shareholders for their own purposes and are contractually obligated to maintain strict confidentiality. We limit their use of information to the performance of the specific services we have requested.

We restrict access to personal information by our employees and agents. Our employees are trained about privacy and are required to safeguard personal information.

We maintain physical, electronic and procedural safeguards that comply with federal standards to guard your nonpublic personal information.

To provide us with updated information, report suspected fraud or identity theft, or for any other questions, please call the number below.

Schwab Funds^® direct investors: 1-800-407-0256

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Notes

Notes

Notes

Laudus MarketMasters Funds

Laudus Funds^®

Laudus Funds offer investors access to some of the world’s leading investment managers. With a rigorous manager selection process and ongoing oversight by Charles Schwab Investment Management, Laudus Funds offer single and multi-manager strategies as a complement to other funds managed by Charles Schwab Investment Management. The list below shows all currently available Laudus Funds.

An investor should consider a fund’s investment objectives, risks, charges and expenses carefully before investing or sending money. This and other important information can be found in the fund’s prospectus or, if available, the summary prospectus. Please call 1-877-824-5615 for a prospectus for any Laudus Fund. Please read the prospectus carefully before you invest. This report must be preceded or accompanied by a current prospectus.

Proxy Voting Policies, Procedures and Results

A description of the proxy voting policies and procedures used to determine how to vote proxies on behalf of the funds is available without charge, upon request, by visiting the Laudus Funds’ website at www.schwabfunds.com/laudusfunds_prospectus, the SEC’s website at www.sec.gov, or by contacting Laudus Funds at 1-877-824-5615.

Information regarding how a fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available, without charge, by visiting the fund’s website at www.schwabfunds.com/laudusfunds_prospectus or the SEC’s website at www.sec.gov.

The Laudus Funds^®

Laudus U.S. Large Cap Growth

Laudus U.S. Large Cap Growth Fund

Laudus MarketMasters Funds^®

Laudus International MarketMasters Fund™

Laudus Small-Cap MarketMasters Fund™

Laudus Mondrian Funds™

Laudus Mondrian International Equity Fund

Laudus Mondrian Emerging Markets Fund

Laudus Mondrian International Government Fixed Income Fund

Investment Adviser

Charles Schwab Investment Management, Inc.

211 Main Street, San Francisco, CA 94105

Funds

Laudus MarketMasters Funds

1-877-824-5615

Printed on recycled paper.

Charles Schwab Investment Management, Inc. (CSIM) is the investment adviser for Laudus Funds. The Laudus Group of Funds includes the Laudus Mondrian Funds and Laudus U.S. Large Cap Growth Fund, which are part of the Laudus Trust and distributed by ALPS Distributors, Inc. (ALPS); and the Laudus MarketMasters Funds, which are part of the Schwab Capital Trust and distributed by Charles Schwab & Co., Inc. (Schwab), Member SIPC. Schwab and CSIM, affiliates and subsidiaries of The Charles Schwab Corporation, are not affiliated with ALPS.

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Table of Contents

MFR13812-20
00201781

Annual Report | October 31, 2017

Schwab Active Equity Funds

Schwab Core Equity Fund™

Schwab Dividend Equity Fund™

Schwab Large-Cap Growth Fund™

Schwab Small-Cap Equity Fund™

Schwab Hedged Equity Fund™

Schwab Health Care Fund™

Schwab^® International Core
Equity Fund

This page is intentionally left blank.

Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM).

Distributor: Charles Schwab & Co., Inc. (Schwab)

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Schwab Active Equity Funds

Performance at a Glance

Total Return for the 12 Months Ended October 31, 2017
Schwab Core Equity Fund (Ticker Symbol: SWANX)	26.00%
S&P 500^® Index	23.63%
Fund Category: Morningstar Large Blend¹	22.34%
Performance Details	pages 8-10

Schwab Dividend Equity Fund (Ticker Symbol: SWDSX)	21.19%
Russell 1000^® Value Index	17.78%
Fund Category: Morningstar Large Value¹	19.35%
Performance Details	pages 11-13

Schwab Large-Cap Growth Fund (Ticker Symbol: SWLSX)	28.10%
Russell 1000^® Growth Index	29.71%
Fund Category: Morningstar Large Growth¹	26.56%
Performance Details	pages 14-16

Schwab Small-Cap Equity Fund (Ticker Symbol: SWSCX)	25.87%
Russell 2000^® Index	27.85%
Fund Category: Morningstar Small Blend¹	24.89%
Performance Details	pages 17-19

Total Return for the 12 Months Ended October 31, 2017
Schwab Hedged Equity Fund (Ticker Symbol: SWHEX)	11.71%
S&P 500^® Index	23.63%
Fund Category: Morningstar Long-Short Equity¹	12.09%
Performance Details	pages 20-22

Schwab Health Care Fund² (Ticker Symbol: SWHFX)	21.10%
Dow Jones Global Health Care Index	19.97%
Fund Category: Morningstar Health¹	25.01%
Performance Details	pages 23-25

Schwab International Core Equity Fund² (Ticker Symbol: SICNX)	25.58%
MSCI EAFE^® Index (Net)³	23.44%
Fund Category: Morningstar Foreign Large Blend¹	22.45%
Performance Details	pages 26-28

Minimum Initial Investment⁴

$100

For index definitions, please see the Glossary.

¹	Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
²	The fund’s performance relative to the index may be affected by fair-value pricing and timing differences in foreign exchange calculations. See financial note 2 for more information.
³	The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes.
⁴	Please see the funds’ prospectus for further detail and eligibility requirements.

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Schwab Active Equity Funds

From the President

Marie Chandoha
President and CEO of
Charles Schwab Investment
Management, Inc. and the
funds covered in this report.

Dear Shareholder,

Investors tend to think about risk differently. But one ingredient we’ve found that holds fairly consistent is that while investors seek attractive returns, they also want to protect against the downside. Eight years into the current bull market, we find it an appropriate time to revisit the topic with you, and assure you of our commitment to risk management.

The Schwab Active Equity Funds offer an array of actively managed investment strategies ranging from broad asset-class coverage to sector-specific exposure. All of them are guided by our belief that inefficiencies exist in the U.S. and international equity markets, and that a disciplined investment process can exploit those inefficiencies. Our portfolio management team is highly mindful of risk, managing it at every step of that process. That means the team regularly conducts research and testing to monitor and evaluate its investment decisions, looking for ways to continuously improve and optimize the portfolios.

This risk-controlled approach is integral to consistent, long-term performance. We’re proud of the funds’ sustained track record of solid performance since inception—a record that was bolstered during the 12-month period ended October 31, 2017. All seven of the Schwab Active Equity Funds generated double-digit gains, with four of the funds outperforming their benchmarks.

At Charles Schwab Investment Management, we believe actively managed funds should not only help investors manage risk, but also make clear the risks they’re assuming. We recognize that appetites for risk may change over time. That’s why, for each of our Active Equity Funds, we list a variety of measures on both the funds’ factsheets and our website to help you determine if a fund is a good fit for your risk profile. We believe by including this information, you can make better decisions that align with your thinking about risk.

Our commitment to our shareholders continues to garner us recognition. Earlier this year, we were named one of Morningstar’s “9 Partners for the Next Decade,”¹ reflecting our differentiation, low costs, and repeatable investment strategies. While we’re proud of such achievements, most importantly, we’re honored to serve our investors. We’re committed to putting investors first—a commitment that will continue to inform how we operate and the decisions that we make.

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Schwab Active Equity Funds

From the President (continued)

“ We’re proud of the funds’ sustained track record of solid performance since inception—a record that was bolstered during the 12-month period ended October 31, 2017.”

Thank you for investing with Charles Schwab Investment Management, and for trusting us to help you achieve your financial goals. For more information about the Schwab Active Equity Funds and for the funds’ financial statements, please continue reading this report. In addition, you can find further details about these funds by visiting our website at www.schwabfunds.com. We are also happy to hear from you at 1-877-824-5615.

Sincerely,

Management views may have changed since the report date.

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Schwab Active Equity Funds

The Investment Environment

Over the 12-month reporting period ended October 31, 2017, both U.S. and international equity markets generated positive returns. U.S. stocks rallied amid expectations for reflationary policies from the Trump administration, as well as short-term interest rate hikes from the Federal Reserve (Fed) and high levels of consumer confidence. Outside the U.S., both a generally strengthening global economic outlook and continued accommodative monetary policies from many of the world’s central banks supported the performance of international equities. Due in part to solid global economic growth, traditionally cyclical sectors, such as Information Technology and Health Care, generally outperformed more value-oriented sectors, such as Consumer Staples and Energy. For the reporting period, the S&P 500^® Index, a bellwether for the overall U.S. stock market, returned 23.63%, while the Russell 2000^® Index, a U.S. small-cap company measure, returned 27.85%. Internationally, the MSCI EAFE^® Index (Net)*, a broad measure of international developed equity performance, returned 23.44% for the same period.

Asset Class Performance Comparison % returns during the 12 months ended October 31, 2017

For index definitions, please see the Glossary.

Data source: Index provider websites and CSIM.

Nothing in this report represents a recommendation of a security by the investment adviser.

Management views may have changed since the report date.

*	The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes.

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Schwab Active Equity Funds

The Investment Environment (continued)

During the 12-month reporting period, monetary policy remained generally accommodative across the globe, though several central banks took steps toward tighter policies. In the U.S., the Fed raised short-term interest rates three times over the reporting period, in December, March, and June, despite continued low levels of inflation. The increases were in increments of 0.25%, with the federal funds rate ending the reporting period in a range of 1.00% to 1.25%. However, even with progress toward a more normalized interest rate environment, U.S. interest rates remained low by historical averages. The Fed also announced in September it would begin unwinding its $4.5 trillion balance sheet in late 2017 by allowing securities to mature without reinvesting the proceeds. Outside the U.S., the European Central Bank (ECB) announced that while it would begin to slow the pace of its bond purchases, it would continue the bond buying program through September 2018. The Bank of England (BoE) maintained interest rates at or near record lows, while the Bank of Japan introduced yield curve management as a policy tool in September 2017 and maintained negative interest rates throughout the reporting period. Though inflation remained stubbornly low across much of Europe and Asia, the strengthening global economy prompted some central banks to reiterate that monetary policy normalization could occur sooner than some expect. In June, ECB president Mario Draghi hinted that investors should be prepared for balance sheet unwinding, and BoE governor Mark Carney in August cautioned that a rate increase may come as soon as within the next year. (After the end of the reporting period in early November, the BoE raised its benchmark rate to 0.5%—the first increase in 10 years.)

Market volatility was noticeably subdued over the reporting period, outside of a few bumps tied to political uncertainty in the U.S. and abroad and periods of escalating tensions in North Korea. Otherwise, market volatility, as measured by the CBOE Volatility Index^®¹ (or VIX^®), fell over the reporting period, hitting an all-time low in early October. These low levels of volatility, combined with high consumer confidence, contributed to the momentum-driven rally in cyclical sectors. Meanwhile, most equities rose over the 12-month reporting period, with stock markets in the U.S. reaching record highs several times over the year. In late 2016 and early 2017, U.S. stocks rallied amid expectations for policy changes from the Trump administration, including financial deregulation, increased infrastructure spending, and tax reform. As the reporting period continued and meaningful progress stalled in Washington, strong corporate earnings and solid underlying economic data drove the positive performance of U.S. stocks. Outside the U.S., the performance of international developed stocks continued to be supported by generally accommodative monetary policies and improving global growth.

¹	The CBOE Volatility Index^® (or VIX^®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices.

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Schwab Active Equity Funds

Fund Management

Jonas Svallin, CFA, Vice President and Head of Active Equities, has overall responsibility for all aspects of the management of the funds and leads the Active Equity portfolio management and research team. Prior to joining CSIM in 2012, Mr. Svallin spent nearly three years as a partner and a director of quantitative analytics and research at Fiduciary Research & Consulting, where he provided oversight of quantitative analytics and risk management efforts. From 2003 to 2009, Mr. Svallin was a principal and head portfolio manager at Algert Coldiron Investors LLC (now known as Algert Global). Prior to joining Algert, Mr. Svallin worked as a quantitative research associate at RCM Capital Management and a senior consultant at FactSet Research Systems.

Wei Li, Ph.D., CFA, Senior Portfolio Manager, is responsible for the day-to-day co-management of the funds. Prior to joining CSIM in 2012, Ms. Li spent more than ten years at BlackRock, Inc. (formerly Barclays Global Investors), where she held a number of positions. From 2001 to 2009, she worked in various roles in the Global Advanced Active group, including portfolio management and quantitative research for both U.S. and international equity markets. After 2009, she worked in the defined contribution research and product development area for almost two years.

Iain Clayton, CFA, FRM, Senior Portfolio Manager, is responsible for the day-to-day co-management of the Schwab Core Equity Fund, Schwab International Core Equity Fund and Schwab Health Care Fund. Prior to joining CSIM in 2013, Mr. Clayton spent more than five years at SSI Investment Management, where he was a portfolio manager and director of quantitative research. In these roles, Mr. Clayton co-managed multiple investment strategies and developed quantitative models and valuation approaches. From 2004 to 2008, he worked as a portfolio manager and director at RCM Capital Management (now known as Allianz Global Investors) and helped manage various equity portfolios and developed fundamental-based stock selection models. Prior to that, he was a vice president at Eureka Investment Advisors for almost three years and also served as a senior quantitative analyst/assistant portfolio manager. He has also worked as a quantitative research analyst at RCM Capital Management.

Xin Wen, CFA, Portfolio Manager, is responsible for the day-to-day co-management of the Schwab Large-Cap Growth Fund and the Schwab Dividend Equity Fund. Previously, she served as an Associate Portfolio Manager supporting the Schwab Active Equity Funds. Prior to joining CSIM in 2014, Ms. Wen spent nearly 10 years at Algert Global (formerly Algert Coldiron Investors), a quantitative market neutral hedge fund manager, where she held a number of positions, including Assistant Portfolio Manager and Macroeconomic Research Analyst. In her various roles, she supported both U.S. and International funds and acted as the lead portfolio manager for the Canadian fund.

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Schwab Core Equity Fund as of October 31, 2017

The Schwab Core Equity Fund (the fund) seeks long-term capital growth. To pursue its investment objective, the fund invests primarily in U.S. stocks. The fund expects to hold the common stocks of U.S. companies that have market capitalizations of approximately $500 million or more. To aid its stock selection, the fund uses Schwab Equity Ratings^®. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

Market Highlights. U.S. stocks performed well over the reporting period, with equity markets reaching record highs throughout the year. Low short-term interest rates, steady economic growth, and strong corporate earnings supported the rally in stocks, as did expectations for policy changes from Washington. Meanwhile, the Federal Reserve continued on its path of interest rate normalization, raising the federal funds rate three times over the reporting period and announcing plans to begin reducing the size of its balance sheet.

Performance. The fund returned 26.00% for the 12-month reporting period ended October 31, 2017, outperforming the S&P 500^® Index (the index), which the fund uses for performance comparisons. The index returned 23.63% for the reporting period.

Positioning and Strategies. The fund’s performance relative to the index was enhanced by an overweight investment in Owens Corning, a company engaged in the business of composite and building materials systems, delivering a range of products and services. The fund’s holdings of Owens Corning returned approximately 72% for the reporting period, driven by strong earnings reports. Owens Corning also benefitted from a solid housing market and increased demand of building supplies after hurricanes Harvey and Irma, as well as an acquisition announcement late in the reporting period. Owens Corning also announced in October that it would buy European mineral wool maker, Paroc Group, increasing Owen Corning’s presence in the European market.

Activision Blizzard, Inc. (Activision) was another contributor to the fund’s relative performance. Activision is a developer and publisher of interactive entertainment content and services, and the fund’s holdings of this company returned approximately 62% for the reporting period. Activision’s quarterly results beat management’s guidance each quarter over the reporting period (seven consecutive quarters in a row since the first quarter of 2016). Activision saw strong demand for its digitally delivered content as well as heightened anticipation surrounding game releases in 2017.

In contrast, the fund’s overweight investment in Spectrum Brands Holdings, Inc. (Spectrum) weighed on the fund’s relative performance. Spectrum is a diversified global consumer products company that produces batteries, personal care, pet care, home and garden, hardware, and auto care products for retail customers. The fund’s holdings of Spectrum returned approximately -18% for the reporting period. Missed earnings forecasts and declining sales were large drivers of this performance. In addition, a subsidiary of Spectrum was ordered to pay almost $2 million in civil penalties for failing to report defective coffee carafes and for continuing to distribute them following a recall, further weighing on returns.

FirstEnergy Corp. (FirstEnergy), a holding company involved in the generation, transmission and distribution of electricity, was another detractor from the fund’s relative performance over the reporting period. The fund’s holdings of FirstEnergy returned less than 1%. This performance was largely driven by a drop in customers, as FirstEnergy transitioned from commodity-exposed generation to a fully regulated company during the reporting period, resulting in a sharp reduction in business customers.

Management views and portfolio holdings may have changed since the report date.

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Schwab Core Equity Fund

Performance and Fund Facts as of October 31, 2017

Performance of Hypothetical $10,000 Investment (October 31, 2007 – October 31, 2017)^1,2

Average Annual Total Returns^1,2

Fund and Inception Date	1 Year	5 Years	10 Years
Fund: Schwab Core Equity Fund (7/1/96)	26.00%	14.46%	6.80%
S&P 500^® Index	23.63%	15.18%	7.51%
Fund Category: Morningstar Large Blend³	22.34%	13.70%	6.62%
Fund Expense Ratio⁴: 0.73%

For index definitions, please see the Glossary.

¹	Fund expenses may have been partially absorbed by CSIM and its affiliates. Without these reductions, the fund’s returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
²	On May 21, 2009 and September 7, 2012, the Laudus U.S. MarketMasters Fund and the Schwab Premier Equity Fund, respectively, merged into the fund.
³	Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
⁴	As stated in the prospectus. Reflects the total annual fund operating expenses without contractual fee waivers. For actual ratios during the period, refer to the financial highlights section of the financial statements.

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Schwab Core Equity Fund

Performance and Fund Facts as of October 31, 2017 (continued)

Statistics¹

Number of Holdings	142
Weighted Average Market Cap (millions)	$152,096
Price/Earnings Ratio (P/E)	21.3
Price/Book Ratio (P/B)	2.9
Portfolio Turnover Rate	86%

Sector Weightings % of Investments²

Top Equity Holdings % of Net Assets³

Portfolio holdings may have changed since the report date.

Source of Sector Classification: S& P and MSCI.

¹	Excludes derivatives.
²	The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets.
³	This list is not a recommendation of any security by the investment adviser.

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Schwab Dividend Equity Fund as of October 31, 2017

The Schwab Dividend Equity Fund (the fund) seeks current income and capital appreciation. Under normal circumstances, the fund invests at least 80% of its net assets in dividend-paying common and preferred stocks. To aid its stock selection, the fund uses Schwab Equity Ratings^®. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

Performance. The fund returned 21.19% for the 12-month reporting period ended October 31, 2017, outperforming the Russell 1000^® Value Index (the index), which the fund uses for performance comparisons. The index returned 17.78% for the reporting period.

As of October 31, 2017, the fund’s dividend yield was 1.25%, lower than the 2.45% dividend yield of the index. As of October 31, 2017, the fund’s 30-Day SEC yield was 1.20%.

Positioning and Strategies. The fund’s performance relative to the index was enhanced by an underweight investment in General Electric Company (GE) over the reporting period. The fund’s holdings of GE returned approximately 3%, while GE returned approximately -28% for the index. The fund sold its position in GE in March 2017, and was thus unaffected by GE’s underperformance later in the year due to missed earnings targets and cut guidance amid weakness in oil and gas and high restructuring costs.

Aerospace company The Boeing Company (Boeing) was another contributor to relative performance. The fund’s holdings of Boeing returned approximately 58% over the reporting period, driven by strong earnings momentum and solid demand, especially in the large single-aisle airplane sector. Boeing also saw increased demand from airlines in the Middle East.

By comparison, the fund’s overweight position in Spectrum Brands Holdings, Inc. (Spectrum) weighed on the fund’s relative performance. Spectrum is a diversified global consumer products company that produces batteries, personal care, pet care, home and garden, hardware, and auto care products for retail customers. The fund’s holdings of Spectrum returned approximately -18% for the reporting period. Missed earnings forecasts and declining sales were large drivers of this performance. In addition, a subsidiary of Spectrum was ordered to pay almost $2 million in civil penalties for failing to report defective coffee carafes and for continuing to distribute them following a recall, further weighing on returns.

Retail Properties of America, Inc. was another detractor from the fund’s relative performance. The fund’s class A holdings of Retail Properties of America, Inc. returned approximately -18% for the reporting period. Retail property owners continued to suffer from declining occupancy and leasing rates as brick and mortar retailers struggled with fierce competition from e-commerce.

Management views and portfolio holdings may have changed since the report date.

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Schwab Dividend Equity Fund

Performance and Fund Facts as of October 31, 2017

Performance of Hypothetical $10,000 Investment (October 31, 2007 – October 31, 2017)^1,2

Average Annual Total Returns^1,2

Fund and Inception Date	1 Year	5 Years	10 Years
Fund: Schwab Dividend Equity Fund (9/2/03)	21.19%	12.21%	6.28%
Russell 1000^® Value Index	17.78%	13.48%	5.99%
Dividend Equity Spliced Index	17.78%	13.81%	6.87%
S&P 500^® Index	23.63%	15.18%	7.51%
Fund Category: Morningstar Large Value³	19.35%	12.64%	5.76%
Fund Expense Ratio⁴: 0.89%

Yields¹

30-Day SEC Yield

1.20%

The first index listed for the fund is the fund’s primary benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.

For index definitions, please see the Glossary.

¹	Fund expenses may have been partially absorbed by CSIM and its affiliates. Without these reductions, the fund’s returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
²	On October 7, 2009, the Investor Share class and Select Share class were combined into a single class of shares of the fund. The performance history of the fund prior to October 7, 2009 is that of the fund’s former Select Shares.
³	Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
⁴	As stated in the prospectus. Reflects the total annual fund operating expenses without contractual fee waivers. For actual ratios during the period, refer to the financial highlights section of the financial statements.

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Schwab Dividend Equity Fund

Performance and Fund Facts as of October 31, 2017 (continued)

Statistics¹

Number of Holdings	126
Weighted Average Market Cap (millions)	$104,957
Price/Earnings Ratio (P/E)	19.5
Price/Book Ratio (P/B)	2.0
Portfolio Turnover Rate	70%

Sector Weightings % of Investments²

Top Equity Holdings % of Net Assets³

Portfolio holdings may have changed since the report date.

Source of Sector Classification: S& P and MSCI.

¹	Excludes derivatives.
²	The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets.
³	This list is not a recommendation of any security by the investment adviser.

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Schwab Large-Cap Growth Fund as of October 31, 2017

The Schwab Large-Cap Growth Fund (the fund) seeks long-term capital growth. To pursue its investment objective, the fund invests primarily in U.S. common stocks. Under normal circumstances, the fund invests at least 80% of its net assets in large-cap stocks of U.S. companies. To aid its stock selection, the fund uses Schwab Equity Ratings^®. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

Market Highlights. U.S. growth stocks outperformed U.S. value stocks over the reporting period amid rising short-term interest rates, though both turned in strong returns. Low short-term interest rates, steady economic growth, and strong corporate earnings supported the performance of U.S. stocks, as did expectations for policy changes from Washington. Meanwhile, the Federal Reserve continued on its path of interest rate normalization, raising the federal funds rate three times over the reporting period and announcing plans to begin reducing the size of its balance sheet.

Performance. The fund returned 28.10% for the 12-month reporting period ended October 31, 2017, underperforming the Russell 1000^® Growth Index (the index), which the fund uses for performance comparisons. The index returned 29.71% for the reporting period.

Positioning and Strategies. The fund’s investment in designer retailer Michael Kors Holdings, Ltd. (Michael Kors) weighed on the fund’s relative performance over the reporting period. The fund’s holdings of Michael Kors returned approximately -18%, reflecting five consecutive quarters of falling revenues. The company also had to contend with aggressive competition and declining mall traffic. On a positive note, the company did post better-than-expected quarterly results in the most recent quarter, outpacing its own management’s guidance.

By comparison, the fund’s performance relative to the index was enhanced by an overweight investment in Owens Corning, a company engaged in the business of composite and building materials systems, delivering a range of products and services. The fund’s holdings of Owens Corning returned approximately 72% for the reporting period, driven by strong earnings reports. Owens Corning also benefitted from a solid housing market and increased demand of building supplies after hurricanes Harvey and Irma, as well as an acquisition announcement late in the reporting period. Owens Corning also announced in October that it would buy European mineral wool maker, Paroc Group, increasing Owen Corning’s presence in the European market.

Aerospace company The Boeing Company (Boeing) was another contributor to relative performance. The fund’s holdings of Boeing returned approximately 69% over the reporting period, driven by strong earnings momentum and solid demand, especially in the large single-aisle airplane sector. Boeing also saw increased demand from airlines in the Middle East.

Management views and portfolio holdings may have changed since the report date.

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Schwab Large-Cap Growth Fund

Performance and Fund Facts as of October 31, 2017

Performance of Hypothetical $10,000 Investment (October 31, 2007 – October 31, 2017)^1,2

Average Annual Total Returns^1,2

Fund and Inception Date	1 Year	5 Years	10 Years
Fund: Schwab Large-Cap Growth Fund (10/3/05)	28.10%	15.58%	7.54%
Russell 1000^® Growth Index	29.71%	16.83%	9.13%
Fund Category: Morningstar Large Growth³	26.56%	15.09%	7.47%
Fund Expense Ratios⁴: Net 0.99%; Gross 1.04%

For index definitions, please see the Glossary.

¹	Fund expenses may have been partially absorbed by CSIM and its affiliates. Without these reductions, the fund’s returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
²	On October 7, 2009, the Investor Share class and Select Share class were combined into a single class of shares of the fund. The performance history of the fund prior to October 7, 2009 is that of the fund’s former Select Shares.
³	Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
⁴	As stated in the prospectus. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as the investment adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual ratios during the period, refer to the financial highlights section of the financial statements.

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Schwab Large-Cap Growth Fund

Performance and Fund Facts as of October 31, 2017 (continued)

Statistics¹

Number of Holdings	113
Weighted Average Market Cap (millions)	$202,948
Price/Earnings Ratio (P/E)	24.5
Price/Book Ratio (P/B)	4.8
Portfolio Turnover Rate	81%

Sector Weightings % of Investments²

Top Equity Holdings % of Net Assets³

Portfolio holdings may have changed since the report date.

Source of Sector Classification: S& P and MSCI.

¹	Excludes derivatives.
²	The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets.
³	This list is not a recommendation of any security by the investment adviser.

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Schwab Small-Cap Equity Fund as of October 31, 2017

The Schwab Small-Cap Equity Fund (the fund) seeks long-term capital growth. Under normal circumstances, the fund invests at least 80% of its net assets in small-cap equity securities. To aid its stock selection, the fund uses Schwab Equity Ratings^®. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

Market Highlights. Small-cap stocks performed well over the reporting period, generally outperforming large-cap stocks. Low short-term interest rates, steady economic growth, and strong corporate earnings supported the positive overall performance of U.S. stocks, as did expectations for policy changes from Washington, particularly corporate tax reform. Meanwhile, the Federal Reserve continued on its path of interest rate normalization, raising the federal funds rate three times over the reporting period and announcing plans to begin reducing the size of its balance sheet.

Performance. The fund returned 25.87% for the 12-month reporting period ended October 31, 2017, underperforming the Russell 2000^® Index (the index), which the fund uses for performance comparisons. The index returned 27.85% for the reporting period.

Positioning and Strategies. The fund’s investment in food and beverage company and milk processor Dean Foods Company (Dean) weighed on the fund’s relative performance. The fund’s holdings of Dean returned approximately -45% for the reporting period as the company consistently missed earnings estimates due to slowing milk sales and rising costs. Dean also faced competition from store brands, most notably former customer Wal-Mart, which announced plans to open its own milk processing facility.

Matrix Service Company (Matrix), a company engaged in providing engineering, fabrication, infrastructure, and construction and maintenance services primarily to the oil, gas, power, petrochemical, industrial, mining, and minerals markets, was another detractor from the fund’s relative performance over the reporting period. The fund’s overweight position in Matrix returned approximately -50% over the reporting period, driven by weak natural gas and oil prices that negatively affected quarterly earnings.

In contrast, the fund’s overweight position in TriNet Group, Inc. (TriNet) enhanced the fund’s relative performance. The fund’s holdings in TriNet, a provider of human resources (HR) solutions for small to medium-sized businesses, returned approximately 85% for the reporting period. An increasing number of companies have outsourced HR responsibilities over the last two years, resulting in strong financial results for this company. TriNet also benefitted from the June release of a new HR solution that is designed to meet the needs of local and owner-operated business in industries including hospitality, property management, and retail.

Extreme Networks, Inc. was another contributor to the fund’s relative performance. The fund’s investment in Extreme Networks, a provider of network infrastructure equipment, had a triple-digit return of approximately 185% over the reporting period, driven by rising sales, strong quarterly earnings reports, and several successful acquisitions. These acquisitions included the purchase of part of Avaya Networking’s business in July, as well as a deal with Brocade Communications Systems, Inc. to acquire its data center networking business in October.

Management views and portfolio holdings may have changed since the report date.

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Schwab Small-Cap Equity Fund

Performance and Fund Facts as of October 31, 2017

Performance of Hypothetical $10,000 Investment (October 31, 2007 – October 31, 2017)^1,2

Average Annual Total Returns^1,2

Fund and Inception Date	1 Year	5 Years	10 Years
Fund: Schwab Small-Cap Equity Fund (7/1/03)	25.87%	15.70%	7.98%
Russell 2000^® Index	27.85%	14.49%	7.63%
Fund Category: Morningstar Small Blend³	24.89%	13.40%	7.07%
Fund Expense Ratio⁴: 1.10%

For index definitions, please see the Glossary.

¹	Fund expenses may have been partially absorbed by CSIM and its affiliates. Without these reductions, the fund’s returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
²	On September 28, 2009, the Investor Share class and Select Share class were combined into a single class of shares of the fund. The performance history of the fund prior to September 28, 2009 is that of the fund’s former Select Shares.
³	Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
⁴	As stated in the prospectus. Reflects the total annual fund operating expenses without contractual fee waivers. For actual ratios during the period, refer to the financial highlights section of the financial statements.

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Schwab Small-Cap Equity Fund

Performance and Fund Facts as of October 31, 2017 (continued)

Statistics¹

Number of Holdings	325
Weighted Average Market Cap (millions)	$2,123
Price/Earnings Ratio (P/E)	19.2
Price/Book Ratio (P/B)	2.2
Portfolio Turnover Rate	99%

Sector Weightings % of Investments²

Top Equity Holdings % of Net Assets³

Portfolio holdings may have changed since the report date.

Source of Sector Classification: S& P and MSCI.

Small-company stocks are subject to greater volatility than many other asset classes.

¹	Excludes derivatives.
²	The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets.
³	This list is not a recommendation of any security by the investment adviser.

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Schwab Hedged Equity Fund as of October 31, 2017

The Schwab Hedged Equity Fund (the fund) seeks long-term capital appreciation over market cycles with lower volatility than the broad equity market. To pursue its investment objective, the fund establishes long and short positions in equity securities issued by U.S. companies. The fund typically purchases or sells short stocks of companies that have market capitalizations of $1 billion or more at the time the stock is purchased or sold short. To aid its stock selection, the fund uses Schwab Equity Ratings^®. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

Performance. The fund returned 11.71% for the 12-month reporting period ended October 31, 2017, underperforming the S&P 500^® Index (the index), which the fund uses for performance comparisons. The index returned 23.63% for the reporting period.

Positioning and Strategies. Over the reporting period, allocation across sectors detracted from the fund’s performance relative to the index. Stock selection within sectors also slightly detracted.

From a sector standpoint, short positions in the Information Technology, Financials, and Industrials sectors detracted from relative performance due to under- or overweighting these sectors compared to the index. However, short positions in the Energy and Consumer Staples sectors and the fund’s long position in the Telecommunication Services sector slightly enhanced the fund’s relative performance.

Looking at stock selection, long positions in the Energy and Health Care sectors and the fund’s short positions in the Consumer Discretionary sector detracted from relative performance. Long positions in the Industrials, Materials, and Financials sectors, however, enhanced the fund’s relative performance due to stock selection, though not enough to offset the drag from selection in other sectors.

At the security level, the fund’s largest detractor from total return was the fund’s short position in LendingTree, Inc. (LendingTree), a company engaged in operating an online loan marketplace for consumers seeking loans and other credit-based offerings. LendingTree returned approximately 209% for the reporting period, and thus the fund’s short position in this company weighed on the return of the fund. In contrast, the fund’s long position in Bank of America Corporation (Bank of America) contributed the most to the fund’s total return. The fund’s holdings of Bank of America returned approximately 68% over the reporting period.

Management views and portfolio holdings may have changed since the report date.

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Schwab Hedged Equity Fund

Performance and Fund Facts as of October 31, 2017

Performance of Hypothetical $10,000 Investment (October 31, 2007 – October 31, 2017)^1,2

Average Annual Total Returns^1,2

Fund and Inception Date	1 Year	5 Years	10 Years
Fund: Schwab Hedged Equity Fund (9/3/02)	11.71%	8.92%	4.46%
S&P 500^® Index	23.63%	15.18%	7.51%
Fund Category: Morningstar Long-Short Equity³	12.09%	6.07%	3.99%
Fund Expense Ratios⁴: Net 1.85%; Gross 1.87%

For index definitions, please see the Glossary.

The Schwab Hedged Equity Fund’s long positions can decline in value at the same time the value of its shorted stocks increases, thereby increasing the potential for loss. The potential loss associated with short positions is much greater than the original value of the securities sold. The use of borrowing and short sales may cause the fund to have higher expenses than those of equity funds that do not use such techniques.

¹	Fund expenses may have been partially absorbed by CSIM and its affiliates. Without these reductions, the fund’s returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
²	On September 28, 2009, the Investor Share class and Select Share class were combined into a single class of shares of the fund. The performance history of the fund prior to September 28, 2009 is that of the fund’s former Select Shares.
³	Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
⁴	As stated in the prospectus. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as the investment adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual ratios during the period, refer to the financial highlights section of the financial statements.

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Schwab Hedged Equity Fund

Performance and Fund Facts as of October 31, 2017 (continued)

Statistics¹

Number of Holdings
Long Holdings	181
Short Holdings	104
Weighted Average Market Cap (millions)
Long Holdings	$83,138
Short Holdings	$8,245
Price/Earnings Ratio (P/E)
Long Holdings	20.9
Short Holdings	27.4
Price/Book Ratio (P/B)
Long Holdings	2.6
Short Holdings	2.6
Portfolio Turnover Rate	163%
Portfolio Turnover Rate excluding short sales	107%

Top Equity Long Holdings % of Net Assets²

Top Equity Short Holdings % of Net Assets²

Portfolio holdings may have changed since the report date.

Source of Sector Classification: S& P and MSCI.

¹	Excludes derivatives.
²	This list is not a recommendation of any security by the investment adviser.

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Schwab Health Care Fund as of October 31, 2017

The Schwab Health Care Fund (the fund) seeks long-term capital growth. To pursue its goal, the fund primarily invests in equity securities issued by companies in the Health Care sector. The fund uses Schwab Equity Ratings^® to aid its U.S. stock selection and Schwab’s proprietary international stock research to aid its international stock selection. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

Market Highlights. Global stocks performed well over the reporting period. In the U.S., equity markets reached record highs throughout the year, driven by steady economic growth, strong corporate earnings, and expectations for policy changes from Washington. Meanwhile, the Federal Reserve continued on its path of interest rate normalization, raising the federal funds rate three times over the reporting period and announcing plans to begin reducing the size of its balance sheet. Internationally, equities rallied as global economic growth strengthened and monetary policies remained generally accommodative. In addition, many international currencies appreciated against the U.S. dollar over the reporting period, enhancing returns on overseas investments in U.S. dollar terms. U.S. health care stocks performed well over the reporting period, though lagged the broader market.

Performance. The fund returned 21.10% for the 12-month reporting period ended October 31, 2017, outperforming the Dow Jones Global Health Care Index (the index), which the fund uses for performance comparisons. The index returned 19.97% for the reporting period.

Positioning and Strategies. The fund’s performance relative to the index was enhanced by an overweight position in Swiss biopharmaceutical company, Actelion Ltd. (Actelion). The fund’s holdings of Actelion returned approximately 89% for the reporting period, driven by the company’s buyout by Johnson & Johnson in June 2017.

Agilent Technologies, Inc. (Agilent) was another contributor to the fund’s relative performance. The fund’s holdings of Agilent, a company that provides application focused solutions that include instruments, software, services, and consumables for the entire laboratory workflow, returned approximately 58% over the reporting period. Agilent made several notable announcements over the reporting period that contributed to these results, including an expansion of products to accelerate disease research and the expanded use of a cancer diagnostic for use in cases of specific types of cancer.

In contrast, the fund’s overweight investment in pharmacy benefit management company, Express Scripts Holding Company (Express Scripts), weighed on the fund’s relative performance. The fund’s holdings of Express Scripts returned approximately -9% amid challenges over the reporting period, including steep competition, stalling growth, and employee turnover in its executive ranks. Insurance company Anthem announced it was forming its own pharmacy benefit management company and would no longer be a customer of Express Scripts once the contract between the two companies ends in 2019. Express Scripts has also seen five different CFOs in as many years.

Celgene Corporation (Celgene), an integrated global biopharmaceutical company, was another detractor from the fund’s relative performance over the reporting period. The fund’s holdings of Celgene returned approximately -1%, due in large part to a failed clinical trial of its Crohn’s disease drug Mongersen and disappointing sales of its key plaque psoriasis drug Otezla.

Management views and portfolio holdings may have changed since the report date.

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Schwab Health Care Fund

Performance and Fund Facts as of October 31, 2017

Performance of Hypothetical $10,000 Investment (October 31, 2007 – October 31, 2017)¹

Average Annual Total Returns¹

Fund and Inception Date	1 Year	5 Years	10 Years
Fund: Schwab Health Care Fund (7/3/00)	21.10%	16.07%	10.27%
Dow Jones Global Health Care Index	19.97%	14.15%	9.17%
S&P 500^® Index	23.63%	15.18%	7.51%
Fund Category: Morningstar Health²	25.01%	17.10%	11.31%
Fund Expense Ratio³: 0.80%

The first index listed for the fund is the fund’s primary benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.

For index definitions, please see the Glossary.

The fund’s performance relative to the index may be affected by fair-value pricing, see financial note 2 for more information.

Since the Schwab Health Care Fund focuses its investments on companies involved in a specific sector, this fund may involve a greater degree of risk than an investment in mutual funds that do not concentrate their investments.

¹	Fund expenses may have been partially absorbed by CSIM and its affiliates. Without these reductions, the fund’s returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
²	Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
³	As stated in the prospectus. Reflects the total annual fund operating expenses without contractual fee waivers. For actual ratios during the period, refer to the financial highlights section of the financial statements.

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Schwab Health Care Fund

Performance and Fund Facts as of October 31, 2017 (continued)

Statistics¹

Number of Holdings	82
Weighted Average Market Cap (millions)	$107,052
Price/Earnings Ratio (P/E)	23.4
Price/Book Ratio (P/B)	4.0
Portfolio Turnover Rate	42%

Industry Weightings % of Investments¹

Top Equity Holdings % of Net Assets²

Portfolio holdings may have changed since the report date.

Source of Industry Classification: S&P and MSCI.

¹	Excludes derivatives.
²	This list is not a recommendation of any security by the investment adviser.

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Schwab International Core Equity Fund as of October 31, 2017

The Schwab International Core Equity Fund (the fund) seeks long-term capital growth. To pursue its investment objective, the fund invests primarily in the stocks of publicly traded companies located in developed market countries, excluding the U.S. To aid its stock selection, the fund uses Schwab’s proprietary international stock research. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

Market Highlights. Stocks in developed international markets generated solid returns over the reporting period, driven by improving global economic growth and strong corporate earnings. Despite some political uncertainty and escalating tensions in North Korea, overall market volatility was noticeably subdued and equity markets were minimally affected. Meanwhile, oil and commodity prices stabilized and most central banks maintained accommodative monetary policies, further supporting the performance of international equities. In addition, many international currencies appreciated against the U.S. dollar over the reporting period, enhancing returns on overseas investments in U.S. dollar terms.

Performance. The fund returned 25.58% for the 12-month reporting period ended October 31, 2017, outperforming the MSCI EAFE^® Index (Net) (the index), which the fund uses for performance comparisons. The index returned 23.44% for the reporting period.

Positioning and Strategies. The fund’s performance relative to the index was enhanced by an overweight position in Swiss biopharmaceutical company, Actelion Ltd. (Actelion). The fund’s holdings of Actelion returned approximately 88% for the reporting period, driven by the company’s buyout by Johnson & Johnson in June 2017.

Covestro AG (Covestro) was another contributor to the fund’s relative performance over the reporting period. The fund’s holdings of Covestro, a German-based company engaged in the manufacture of plastic materials, returned approximately 66%. Covestro benefitted from an improving global economic backdrop, particularly in automobiles and construction, resulting in strong third quarter revenues and earnings that beat expectations.

By comparison, the fund’s overweight position in global health care company GlaxoSmithKline plc (GlaxoSmithKline) weighed on the fund’s relative performance. Britain-based GlaxoSmithKline faced declining sales in China, as well as concerns that a potential bid for Pfizer’s consumer health unit would result in a dividend cut for GlaxoSmithKline investors. Over the reporting period, the fund’s holdings of GlaxoSmithKline returned approximately -4%.

Astellas Pharma Inc. (Astellas) was another detractor from the fund’s relative performance. The fund’s holdings of Astellas, a Japan-based pharmaceutical company, returned approximately -8% over the reporting period. During this period, sales of both Astellas’s prostate cancer drug and high cholesterol treatment slowed and failed to meet expectations. In addition, the company terminated a Phase 3 study in non-small cell lung cancer.

Management views and portfolio holdings may have changed since the report date.

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Schwab International Core Equity Fund

Performance and Fund Facts as of October 31, 2017

Performance of Hypothetical $10,000 Investment (May 30, 2008 – October 31, 2017)^1,2

Average Annual Total Returns^1,2

Fund and Inception Date	1 Year	5 Years	Since Inception
Fund: Schwab International Core Equity Fund (5/30/08)	25.58%	10.30%	3.75%
MSCI EAFE^® Index (Net)³	23.44%	8.53%	2.17%
MSCI EAFE^® Index (Gross)	24.01%	9.01%	2.64%
Fund Category: Morningstar Foreign Large Blend⁴	22.45%	7.95%	N/A
Fund Expense Ratios⁵: Net 0.86%; Gross 0.91%

The first index listed for the fund is the fund’s primary benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.

For index definitions, please see the Glossary.

The fund’s performance relative to the index may be affected by fair-value pricing, see financial note 2 for more information.

¹	Fund expenses may have been partially absorbed by CSIM and its affiliates. Without these reductions, the fund’s returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
²	On October 7, 2009, the Investor Share class, Select Share class and Institutional Share class were combined into a single class of shares of the fund. The performance history of the fund prior to October 7, 2009 is that of the fund’s former Institutional Shares. On December 3, 2009, the Laudus Rosenberg International Equity Fund merged into the fund.
³	The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes.
⁴	Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
⁵	As stated in the prospectus. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as the investment adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual ratios during the period, refer to the financial highlights section of the financial statements.

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Schwab International Core Equity Fund

Performance and Fund Facts as of October 31, 2017 (continued)

Statistics¹

Number of Holdings	183
Weighted Average Market Cap (millions)	$51,436
Price/Earnings Ratio (P/E)	12.7
Price/Book Ratio (P/B)	1.9
Portfolio Turnover Rate	85%

Sector Weightings % of Investments¹

Top Equity Holdings % of Net Assets²

Top Country Weightings % of Investments³

Portfolio holdings may have changed since the report date.

Source of Sector Classification: S&P and MSCI.

International investments are subject to additional risks such as currency fluctuation, geopolitical risk and the potential for illiquid markets.

¹	Excludes derivatives.
²	This list is not a recommendation of any security by the investment adviser.
³	The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, excluding derivatives, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets.

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Schwab Active Equity Funds

Fund Expenses (Unaudited)

Examples for a $1,000 Investment

Hypothetical Return lines in the table below provide information about hypothetical account values and hypothetical expenses based on a fund’s actual expense ratio and an assumed return of 5% per year before expenses. Because the return used is not an actual return, it may not be used to estimate the actual ending account value or expenses you paid for the period.

	Expense Ratio (Annualized)¹	Beginning Account Value at 5/1/17	Ending Account Value (Net of Expenses) at 10/31/17	Expenses Paid During Period 5/1/17-10/31/17²
Schwab Core Equity Fund
Actual Return	0.74%	$1,000.00	$1,095.30	$3.91
Hypothetical 5% Return	0.74%	$1,000.00	$1,021.47	$3.77
Schwab Dividend Equity Fund
Actual Return	0.88%	$1,000.00	$1,070.40	$4.59
Hypothetical 5% Return	0.88%	$1,000.00	$1,020.76	$4.48
Schwab Large-Cap Growth Fund
Actual Return	0.99%	$1,000.00	$1,115.40	$5.28
Hypothetical 5% Return	0.99%	$1,000.00	$1,020.21	$5.04
Schwab Small-Cap Equity Fund
Actual Return	1.11%	$1,000.00	$1,069.90	$5.79
Hypothetical 5% Return	1.11%	$1,000.00	$1,019.60	$5.65
Schwab Hedged Equity Fund
Actual Return	1.51%	$1,000.00	$1,031.60	$7.73
Hypothetical 5% Return	1.51%	$1,000.00	$1,017.59	$7.68
Schwab Health Care Fund
Actual Return	0.81%	$1,000.00	$1,069.40	$4.23
Hypothetical 5% Return	0.81%	$1,000.00	$1,021.12	$4.13
Schwab International Core Equity Fund
Actual Return	0.86%	$1,000.00	$1,092.10	$4.54
Hypothetical 5% Return	0.86%	$1,000.00	$1,020.86	$4.38

¹	Based on the most recent six-month expense ratio; may differ from the expense ratio provided in the Financial Highlights which covers a 12-month period.
²	Expenses for each fund are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by the 184 days of the period, and divided by the 365 days of the fiscal year.

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Schwab Core Equity Fund

Financial Statements

Financial Highlights

	11/1/16– 10/31/17	11/1/15– 10/31/16	11/1/14– 10/31/15	11/1/13– 10/31/14	11/1/12– 10/31/13
Per-Share Data
Net asset value at beginning of period	$19.65	$23.10	$25.48	$23.46	$18.80
Income (loss) from investment operations:
Net investment income (loss)	0.34 ¹	0.38 ¹	0.30 ¹	0.30	0.32
Net realized and unrealized gains (losses)	4.71	(0.52)	1.05	3.60	4.51
Total from investment operations	5.05	(0.14)	1.35	3.90	4.83
Less distributions:
Distributions from net investment income	(0.34)	(0.36)	(0.33)	(0.22)	(0.17)
Distributions from net realized gains	—	(2.95)	(3.40)	(1.66)	—
Total distributions	(0.34)	(3.31)	(3.73)	(1.88)	(0.17)
Net asset value at end of period	$24.36	$19.65	$23.10	$25.48	$23.46
Total return	26.00%	(0.50%)	5.61%	17.88%	25.89%
Ratios/Supplemental Data
Ratios to average net assets:
Net operating expenses	0.73%	0.73%	0.74%	0.72%	0.72%
Gross operating expenses	0.74%	0.73%	0.74%	0.72%	0.73%
Net investment income (loss)	1.53%	1.93%	1.29%	1.19%	1.51%
Portfolio turnover rate	86%	80%	81%	63%	80%
Net assets, end of period (x 1,000,000)	$2,353	$2,075	$2,363	$2,317	$2,247

Calculated based on the average shares outstanding during the period.

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Schwab Active Equity Funds | Annual Report

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Table of Contents

Schwab Core Equity Fund

Portfolio Holdings as of October 31, 2017

This section shows all the securities in the fund's portfolio and their values as of the report date.

The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at www.sec.gov and may be viewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after calendar quarters on the fund's website at www.schwabfunds.com/schwabfunds_prospectus.

Security	Number of Shares	Value ($)
Common Stock 99.3% of net assets

Automobiles & Components 1.1%
Lear Corp.	140,351	24,644,232

Banks 5.6%
Bank of America Corp.	310,887	8,515,195
CIT Group, Inc.	100,329	4,677,338
Citigroup, Inc.	750,582	55,167,777
Citizens Financial Group, Inc.	233,923	8,891,413
Essent Group Ltd. *	242,942	10,354,188
JPMorgan Chase & Co.	118,779	11,950,355
Regions Financial Corp.	1,363,700	21,110,076
The PNC Financial Services Group, Inc.	72,593	9,929,997
		130,596,339

Capital Goods 8.7%
Allison Transmission Holdings, Inc.	657,457	27,935,348
Crane Co.	86,538	7,193,039
Fortune Brands Home & Security, Inc.	106,690	7,047,941
Graco, Inc.	57,663	7,599,407
Ingersoll-Rand plc	233,063	20,649,382
L3 Technologies, Inc.	73,778	13,809,766
Oshkosh Corp.	227,241	20,806,186
Owens Corning	424,103	35,069,077
The Boeing Co.	209,908	54,152,066
The Toro Co.	175,123	11,006,480
		205,268,692

Commercial & Professional Services 1.4%
ManpowerGroup, Inc.	161,171	19,869,161
Republic Services, Inc.	86,094	5,602,136
Robert Half International, Inc.	149,974	7,764,154
		33,235,451

Consumer Durables & Apparel 1.9%
Michael Kors Holdings Ltd. *	172,787	8,433,733
NIKE, Inc., Class B	84,007	4,619,545
Ralph Lauren Corp.	127,431	11,396,154
Whirlpool Corp.	116,219	19,051,781
		43,501,213

Consumer Services 3.1%
Aramark	315,770	13,795,992
Carnival Corp.	111,985	7,434,684
Darden Restaurants, Inc.	201,952	16,614,591
Extended Stay America, Inc.	277,957	5,509,108
Las Vegas Sands Corp.	336,719	21,341,250
Starbucks Corp.	160,092	8,779,445
		73,475,070

Security	Number of Shares	Value ($)
Diversified Financials 3.2%
Capital One Financial Corp.	141,156	13,011,760
Discover Financial Services	305,014	20,292,581
Evercore, Inc., Class A	94,804	7,593,800
Franklin Resources, Inc.	102,061	4,299,830
Leucadia National Corp.	101,765	2,574,655
Morgan Stanley	426,907	21,345,350
State Street Corp.	75,094	6,908,648
		76,026,624

Energy 4.8%
Chevron Corp.	226,560	26,256,038
ConocoPhillips	340,719	17,427,777
Exxon Mobil Corp.	336,806	28,072,780
Halliburton Co.	195,370	8,350,114
Rowan Cos. plc, Class A *	356,678	5,111,196
Valero Energy Corp.	343,031	27,061,716
		112,279,621

Food & Staples Retailing 1.5%
CVS Health Corp.	131,214	8,992,096
Wal-Mart Stores, Inc.	305,378	26,662,553
		35,654,649

Food, Beverage & Tobacco 4.6%
Archer-Daniels-Midland Co.	227,590	9,301,603
Bunge Ltd.	84,133	5,786,668
Campbell Soup Co.	158,727	7,518,898
Dr Pepper Snapple Group, Inc.	36,192	3,100,207
Ingredion, Inc.	127,704	16,007,696
Molson Coors Brewing Co., Class B	77,157	6,239,687
PepsiCo, Inc.	409,568	45,146,681
Philip Morris International, Inc.	50,630	5,297,923
The Hershey Co.	86,042	9,135,939
		107,535,302

Health Care Equipment & Services 5.2%
Baxter International, Inc.	286,767	18,487,868
Centene Corp. *	48,194	4,514,332
Express Scripts Holding Co. *	331,766	20,333,938
Hill-Rom Holdings, Inc.	174,761	14,104,960
Humana, Inc.	115,723	29,549,868
UnitedHealth Group, Inc.	87,248	18,341,275
WellCare Health Plans, Inc. *	55,497	10,973,977
Zimmer Biomet Holdings, Inc.	53,072	6,454,617
		122,760,835

Household & Personal Products 2.5%
Colgate-Palmolive Co.	186,971	13,172,107
Energizer Holdings, Inc.	119,780	5,149,342
HRG Group, Inc. *	105,572	1,712,378

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Schwab Active Equity Funds | Annual Report

See financial notes

Table of Contents

Schwab Core Equity Fund

Portfolio Holdings as of October 31, 2017 (continued)

Security	Number of Shares	Value ($)
Kimberly-Clark Corp.	161,738	18,197,142
Spectrum Brands Holdings, Inc.	193,026	21,217,418
		59,448,387

Insurance 4.9%
CNA Financial Corp.	58,649	3,174,670
Everest Re Group Ltd.	125,763	29,862,424
Loews Corp.	181,576	8,989,828
Prudential Financial, Inc.	68,477	7,563,969
Reinsurance Group of America, Inc.	114,133	17,049,188
The Allstate Corp.	482,436	45,281,443
The Hartford Financial Services Group, Inc.	60,689	3,340,930
		115,262,452

Materials 4.2%
Ashland Global Holdings, Inc.	167,764	11,404,597
Axalta Coating Systems Ltd. *	842,003	27,996,600
Berry Global Group, Inc. *	352,791	20,973,425
Eastman Chemical Co.	115,922	10,526,877
Freeport-McMoRan, Inc. *	366,878	5,128,954
LyondellBasell Industries N.V., Class A	84,600	8,758,638
PPG Industries, Inc.	65,299	7,590,356
Silgan Holdings, Inc.	253,153	7,404,725
		99,784,172

Media 2.2%
Comcast Corp., Class A	613,619	22,108,693
Live Nation Entertainment, Inc. *	447,130	19,575,351
Sinclair Broadcast Group, Inc., Class A	323,129	10,243,189
		51,927,233

Pharmaceuticals, Biotechnology & Life Sciences 8.3%
AbbVie, Inc.	150,958	13,623,960
Amgen, Inc.	197,706	34,642,045
Celgene Corp. *	172,531	17,420,455
Eli Lilly & Co.	276,852	22,685,253
Gilead Sciences, Inc.	134,892	10,111,504
Johnson & Johnson	253,560	35,348,800
Pfizer, Inc.	1,176,819	41,259,274
Thermo Fisher Scientific, Inc.	100,386	19,457,818
		194,549,109

Real Estate 3.6%
American Homes 4 Rent, Class A	121,344	2,582,200
Apartment Investment & Management Co., Class A	208,565	9,172,689
DCT Industrial Trust, Inc.	95,913	5,564,872
Equity LifeStyle Properties, Inc.	241,387	21,357,922
PS Business Parks, Inc.	32,997	4,366,493
Realogy Holdings Corp.	627,583	20,289,758
Retail Properties of America, Inc., Class A	291,686	3,564,403
Senior Housing Properties Trust	965,022	17,756,405
		84,654,742

Retailing 3.5%
Amazon.com, Inc. *	29,752	32,884,291
Expedia, Inc.	100,316	12,505,393
The Home Depot, Inc.	198,694	32,939,491
The Priceline Group, Inc. *	1,821	3,481,679
		81,810,854

Security	Number of Shares	Value ($)
Semiconductors & Semiconductor Equipment 3.0%
Applied Materials, Inc.	346,377	19,546,054
Intel Corp.	418,527	19,038,793
Lam Research Corp.	32,415	6,760,797
Maxim Integrated Products, Inc.	159,070	8,357,538
ON Semiconductor Corp. *	838,670	17,880,444
		71,583,626

Software & Services 14.3%
Accenture plc, Class A	115,234	16,404,712
Alliance Data Systems Corp.	60,931	13,632,093
Alphabet, Inc., Class A *	46,283	47,812,190
Alphabet, Inc., Class C *	10,791	10,970,562
CACI International, Inc., Class A *	90,513	13,011,244
Facebook, Inc., Class A *	166,569	29,992,414
Fidelity National Information Services, Inc.	303,209	28,125,667
International Business Machines Corp.	143,696	22,137,806
Intuit, Inc.	176,359	26,633,736
MAXIMUS, Inc.	130,629	8,677,685
Microsoft Corp.	1,056,008	87,838,745
Science Applications International Corp.	39,257	2,879,108
Total System Services, Inc.	286,549	20,645,856
VeriSign, Inc. *	71,313	7,667,574
		336,429,392

Technology Hardware & Equipment 6.0%
Apple, Inc.	526,877	89,063,288
CDW Corp.	173,281	12,129,670
Juniper Networks, Inc.	476,438	11,829,956
NCR Corp. *	69,350	2,225,441
Tech Data Corp. *	78,743	7,304,988
Western Digital Corp.	100,044	8,930,928
Xerox Corp.	299,601	9,080,906
		140,565,177

Telecommunication Services 0.7%
AT&T, Inc.	514,131	17,300,508

Transportation 0.7%
Alaska Air Group, Inc.	86,987	5,743,752
Ryder System, Inc.	110,167	8,932,340
Southwest Airlines Co.	44,807	2,413,305
		17,089,397

Utilities 4.3%
CenterPoint Energy, Inc.	1,113,919	32,949,724
FirstEnergy Corp.	1,072,657	35,344,048
PG&E Corp.	292,489	16,897,090
UGI Corp.	345,248	16,523,569
		101,714,431
Total Common Stock
(Cost $1,859,585,570)		2,337,097,508

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Schwab Active Equity Funds | Annual Report

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Table of Contents

Schwab Core Equity Fund

Portfolio Holdings as of October 31, 2017 (continued)

Security	Number of Shares	Value ($)
Other Investment Company 0.7% of net assets

Money Market Fund 0.7%
State Street Institutional U.S. Government Money Market Fund, Premier Class 0.96% (a)	16,471,360	16,471,360
Total Other Investment Company
(Cost $16,471,360)		16,471,360

*	Non-income producing security.
(a)	The rate shown is the 7-day yield.

The following is a summary of the inputs used to value the fund’s investments as of October 31, 2017 (see financial note 2(a) for additional information):

Description	Quoted Prices in Active Markets for Identical Assets (Level 1)	Other Significant Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total
Assets
Common Stock¹	$2,337,097,508	$—	$—	$2,337,097,508
Other Investment Company¹	16,471,360	—	—	16,471,360
Futures Contracts²	195,509	—	—	195,509
Total	$2,353,764,377	$—	$—	$2,353,764,377

¹	As categorized in Portfolio Holdings.
²	Futures contracts are valued at unrealized appreciation or depreciation.

The fund’s policy is to recognize transfers between Level 1, Level 2 and Level 3 as of the beginning of the fiscal year. There were no transfers between Level 1, Level 2 and Level 3 for the period ended October 31, 2017. Fund investments in underlying mutual funds are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.

₃₃

Schwab Active Equity Funds | Annual Report

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Table of Contents

Schwab Core Equity Fund

Statement of Assets and Liabilities

As of October 31, 2017

Assets
Investments in unaffiliated issuers, at value (cost $1,876,056,930)		$2,353,568,868
Deposit with broker for futures contracts		1,155,000
Receivables:
Dividends		1,497,553
Fund shares sold		427,141
Variation margin on futures contracts		7,700
Prepaid expenses	+	21,291
Total assets		2,356,677,553
Liabilities
Payables:
Investment adviser and administrator fees		930,217
Shareholder service fees		490,703
Fund shares redeemed		2,022,496
Accrued expenses	+	117,078
Total liabilities		3,560,494
Net Assets
Total assets		2,356,677,553
Total liabilities	–	3,560,494
Net assets		$2,353,117,059
Net Assets by Source
Capital received from investors		1,631,785,435
Net investment income not yet distributed		26,704,798
Net realized capital gains		216,919,379
Net unrealized capital appreciation		477,707,447

Net Asset Value (NAV)
Net Assets	÷	Shares Outstanding	=	NAV
$2,353,117,059		96,589,548		$24.36

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Schwab Active Equity Funds | Annual Report

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Table of Contents

Schwab Core Equity Fund

Statement of Operations

For the period November 1, 2016 through October 31, 2017

Investment Income
Dividends (net of foreign withholding tax of $702)		$49,821,119
Securities on loan, net	+	9,152
Total investment income		49,830,271
Expenses
Investment adviser and administrator fees		10,347,153
Shareholder service fees		5,429,325
Shareholder reports		131,329
Portfolio accounting fees		63,050
Transfer agent fees		49,451
Custodian fees		44,177
Professional fees		40,069
Registration fees		39,133
Independent trustees’ fees		19,361
Interest expense		1,259
Other expenses	+	31,535
Total expenses		16,195,842
Expense reduction by CSIM and its affiliates	–	49,451
Net expenses	–	16,146,391
Net investment income		33,683,880
Realized and Unrealized Gains (Losses)
Net realized gains on investments		219,947,328
Net realized gains on futures contracts	+	373,860
Net realized gains		220,321,188
Net change in unrealized appreciation (depreciation) on investments		252,516,675
Net change in unrealized appreciation (depreciation) on futures contracts	+	253,479
Net change in unrealized appreciation (depreciation)	+	252,770,154
Net realized and unrealized gains		473,091,342
Increase in net assets resulting from operations		$506,775,222

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Schwab Active Equity Funds | Annual Report

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Table of Contents

Schwab Core Equity Fund

Statement of Changes in Net Assets

For the current and prior report periods

Operations
	11/1/16-10/31/17		11/1/15-10/31/16
Net investment income		$33,683,880	$41,695,228
Net realized gains		220,321,188	2,984,723
Net change in unrealized appreciation (depreciation)	+	252,770,154	(60,205,448)
Increase (decrease) in net assets from operations		506,775,222	(15,525,497)
Distributions to Shareholders
Distributions from net investment income		(35,084,460)	(37,055,587)
Distributions from net realized gains	+	—	(299,452,225)
Total distributions		($35,084,460)	($336,507,812)

Transactions in Fund Shares
		11/1/16-10/31/17		11/1/15-10/31/16
		SHARES	VALUE	SHARES	VALUE
Shares sold		4,988,532	$112,792,936	9,848,997	$188,207,369
Shares reinvested		1,218,622	25,249,831	12,520,076	244,391,884
Shares redeemed	+	(15,242,604)	(331,861,293)	(19,037,976)	(368,198,142)
Net transactions in fund shares		(9,035,450)	($193,818,526)	3,331,097	$64,401,111
Shares Outstanding and Net Assets
		11/1/16-10/31/17		11/1/15-10/31/16
		SHARES	NET ASSETS	SHARES	NET ASSETS
Beginning of period		105,624,998	$2,075,244,823	102,293,901	$2,362,877,021
Total increase or decrease	+	(9,035,450)	277,872,236	3,331,097	(287,632,198)
End of period		96,589,548	$2,353,117,059	105,624,998	$2,075,244,823
Net investment income not yet distributed			$26,704,798		$27,905,265

₃₆

Schwab Active Equity Funds | Annual Report

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Table of Contents

Schwab Dividend Equity Fund

Financial Statements

Financial Highlights

	11/1/16– 10/31/17	11/1/15– 10/31/16	11/1/14– 10/31/15	11/1/13– 10/31/14	11/1/12– 10/31/13
Per-Share Data
Net asset value at beginning of period	$14.39	$16.43	$19.17	$18.22	$14.52
Income (loss) from investment operations:
Net investment income (loss)	0.29 ¹	0.31 ¹	0.29 ¹	0.27	0.32
Net realized and unrealized gains (losses)	2.75	(0.29)	(0.21)	2.16	3.70
Total from investment operations	3.04	0.02	0.08	2.43	4.02
Less distributions:
Distributions from net investment income	(0.22)	(0.32)	(0.27)	(0.29)	(0.32)
Distributions from net realized gains	—	(1.74)	(2.55)	(1.19)	—
Total distributions	(0.22)	(2.06)	(2.82)	(1.48)	(0.32)
Net asset value at end of period	$17.21	$14.39	$16.43	$19.17	$18.22
Total return	21.19%	0.26%	0.12%	14.26%	27.99%
Ratios/Supplemental Data
Ratios to average net assets:
Net operating expenses	0.88%	0.88%	0.88%	0.89%	0.89%
Gross operating expenses	0.88%	0.89%	0.88%	0.89%	0.89%
Net investment income (loss)	1.78%	2.18%	1.71%	1.47%	1.97%
Portfolio turnover rate	70%	74%	73%	72%	64%
Net assets, end of period (x 1,000,000)	$1,469	$1,560	$1,872	$2,053	$1,804

Calculated based on the average shares outstanding during the period.

₃₇

Schwab Active Equity Funds | Annual Report

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Table of Contents

Schwab Dividend Equity Fund

Portfolio Holdings as of October 31, 2017

This section shows all the securities in the fund's portfolio and their values as of the report date.

The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at www.sec.gov and may be viewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after calendar quarters on the fund's website at www.schwabfunds.com/schwabfunds_prospectus.

Security	Number of Shares	Value ($)
Common Stock 99.4% of net assets

Automobiles & Components 0.5%
Lear Corp.	41,420	7,272,938

Banks 12.0%
Bank of America Corp.	1,092,335	29,919,056
CIT Group, Inc.	242,838	11,321,107
Citigroup, Inc.	719,655	52,894,642
Citizens Financial Group, Inc.	600,281	22,816,681
Essent Group Ltd. *	75,568	3,220,708
JPMorgan Chase & Co.	306,103	30,797,023
Regions Financial Corp.	1,538,968	23,823,225
Wells Fargo & Co.	28,993	1,627,667
		176,420,109

Capital Goods 9.5%
Allison Transmission Holdings, Inc.	606,650	25,776,559
Caterpillar, Inc.	25,380	3,446,604
Hubbell, Inc.	31,481	3,960,940
Ingersoll-Rand plc	153,943	13,639,350
L3 Technologies, Inc.	18,479	3,458,899
Oshkosh Corp.	298,493	27,330,019
Owens Corning	325,262	26,895,915
Raytheon Co.	14,006	2,523,881
Stanley Black & Decker, Inc.	22,415	3,621,143
Textron, Inc.	58,980	3,110,605
The Boeing Co.	101,392	26,157,108
		139,921,023

Consumer Durables & Apparel 1.5%
Hasbro, Inc.	89,716	8,306,805
Ralph Lauren Corp.	20,031	1,791,372
Whirlpool Corp.	74,656	12,238,358
		22,336,535

Consumer Services 0.8%
Darden Restaurants, Inc.	15,758	1,296,411
H&R Block, Inc.	136,143	3,368,178
Las Vegas Sands Corp.	109,662	6,950,377
		11,614,966

Diversified Financials 6.7%
Berkshire Hathaway, Inc., Class B *	67,761	12,667,241
Capital One Financial Corp.	249,969	23,042,142
Discover Financial Services	238,935	15,896,346
Morgan Stanley	568,605	28,430,250
The Goldman Sachs Group, Inc.	45,800	11,105,584
Voya Financial, Inc.	187,056	7,512,169
		98,653,732

Security	Number of Shares	Value ($)
Energy 10.5%
Anadarko Petroleum Corp.	64,765	3,197,448
Baker Hughes, a GE Co.	245,022	7,701,042
Chevron Corp.	329,073	38,136,270
ConocoPhillips	431,503	22,071,378
Exxon Mobil Corp.	605,367	50,457,339
Halliburton Co.	221,955	9,486,357
Rowan Cos. plc, Class A *	28,034	401,727
Valero Energy Corp.	283,265	22,346,776
		153,798,337

Food & Staples Retailing 0.8%
CVS Health Corp.	25,680	1,759,851
Wal-Mart Stores, Inc.	118,107	10,311,922
		12,071,773

Food, Beverage & Tobacco 4.4%
Archer-Daniels-Midland Co.	205,554	8,400,992
Bunge Ltd.	95,737	6,584,791
Campbell Soup Co.	103,305	4,893,558
Ingredion, Inc.	11,140	1,396,399
Molson Coors Brewing Co., Class B	97,249	7,864,527
PepsiCo, Inc.	233,007	25,684,361
Philip Morris International, Inc.	81,253	8,502,314
TreeHouse Foods, Inc. *	18,180	1,206,788
		64,533,730

Health Care Equipment & Services 5.0%
Allscripts Healthcare Solutions, Inc. *	130,299	1,756,431
Baxter International, Inc.	364,566	23,503,570
Express Scripts Holding Co. *	491,326	30,113,371
Hill-Rom Holdings, Inc.	48,549	3,918,390
Humana, Inc.	18,323	4,678,778
UnitedHealth Group, Inc.	43,375	9,118,292
		73,088,832

Household & Personal Products 3.1%
Colgate-Palmolive Co.	213,225	15,021,701
HRG Group, Inc. *	300,220	4,869,568
Kimberly-Clark Corp.	42,591	4,791,913
Spectrum Brands Holdings, Inc.	146,990	16,157,141
The Procter & Gamble Co.	49,534	4,276,766
		45,117,089

Insurance 7.2%
Assured Guaranty Ltd.	23,165	859,422
CNA Financial Corp.	69,303	3,751,371
Everest Re Group Ltd.	112,463	26,704,339
Loews Corp.	341,722	16,918,656
Reinsurance Group of America, Inc.	24,336	3,635,312
The Allstate Corp.	337,004	31,631,196
The Hartford Financial Services Group, Inc.	157,224	8,655,181

₃₈

Schwab Active Equity Funds | Annual Report

See financial notes

Table of Contents

Schwab Dividend Equity Fund

Portfolio Holdings as of October 31, 2017 (continued)

Security	Number of Shares	Value ($)
The Travelers Cos., Inc.	70,536	9,342,493
XL Group Ltd.	102,690	4,155,864
		105,653,834

Materials 4.1%
Axalta Coating Systems Ltd. *	360,094	11,973,125
Berry Global Group, Inc. *	349,406	20,772,187
LyondellBasell Industries N.V., Class A	182,824	18,927,769
PPG Industries, Inc.	69,718	8,104,020
		59,777,101

Media 1.7%
Comcast Corp., Class A	77,550	2,794,127
Live Nation Entertainment, Inc. *	515,281	22,559,002
		25,353,129

Pharmaceuticals, Biotechnology & Life Sciences 9.2%
Amgen, Inc.	129,160	22,631,415
Celgene Corp. *	21,246	2,145,209
Eli Lilly & Co.	234,279	19,196,821
Johnson & Johnson	252,196	35,158,644
Merck & Co., Inc.	29,838	1,643,776
Pfizer, Inc.	1,467,333	51,444,695
Thermo Fisher Scientific, Inc.	16,841	3,264,291
		135,484,851

Real Estate 5.6%
American Homes 4 Rent, Class A	142,868	3,040,231
Apartment Investment & Management Co., Class A	100,366	4,414,097
DCT Industrial Trust, Inc.	75,638	4,388,517
Equity LifeStyle Properties, Inc.	208,157	18,417,731
Prologis, Inc.	72,021	4,651,116
PS Business Parks, Inc.	4,662	616,922
Realogy Holdings Corp.	393,677	12,727,577
Retail Properties of America, Inc., Class A	1,014,603	12,398,449
Senior Housing Properties Trust	1,196,542	22,016,373
		82,671,013

Retailing 0.8%
Expedia, Inc.	9,403	1,172,178
Lowe's Cos., Inc.	72,064	5,761,517
The Home Depot, Inc.	28,437	4,714,286
		11,647,981

Semiconductors & Semiconductor Equipment 1.6%
Applied Materials, Inc.	86,109	4,859,131
Intel Corp.	344,745	15,682,450
ON Semiconductor Corp. *	126,474	2,696,426
		23,238,007

Software & Services 1.9%
Alliance Data Systems Corp.	18,422	4,121,554
Alphabet, Inc., Class A *	10,436	10,780,805
CDK Global, Inc.	23,853	1,516,097
IAC/InterActiveCorp *	6,711	866,054
Intuit, Inc.	11,898	1,796,836

Security	Number of Shares	Value ($)
j2 Global, Inc.	38,019	2,818,729
Microsoft Corp.	20,062	1,668,757
Nuance Communications, Inc. *	164,538	2,425,290
Science Applications International Corp.	30,093	2,207,021
		28,201,143

Technology Hardware & Equipment 3.3%
Apple, Inc.	33,649	5,688,027
CDW Corp.	68,352	4,784,640
Cisco Systems, Inc.	108,810	3,715,861
F5 Networks, Inc. *	27,692	3,358,209
HP, Inc.	93,981	2,025,290
Juniper Networks, Inc.	352,894	8,762,358
NCR Corp. *	137,540	4,413,659
Seagate Technology plc	56,363	2,083,740
Tech Data Corp. *	98,101	9,100,830
Western Digital Corp.	31,659	2,826,199
Xerox Corp.	64,683	1,960,542
		48,719,355

Telecommunication Services 1.9%
AT&T, Inc.	814,445	27,406,074

Transportation 0.2%
Ryder System, Inc.	39,902	3,235,254

Utilities 7.1%
CenterPoint Energy, Inc.	990,683	29,304,403
Exelon Corp.	82,112	3,301,723
FirstEnergy Corp.	830,279	27,357,693
PG&E Corp.	449,440	25,964,149
UGI Corp.	366,846	17,557,250
		103,485,218
Total Common Stock
(Cost $1,225,343,440)		1,459,702,024
Security Rate, Maturity Date	Face Amount ($)	Value ($)
Short-Term Investment 0.6% of net assets

Time Deposit 0.6%
Sumitomo Mitsui Banking Corp.
0.60%, 11/01/17 (a)	9,116,201	9,116,201
Total Short-Term Investment
(Cost $9,116,201)		9,116,201

*	Non-income producing security.
(a)	The rate shown is the current daily overnight rate.

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Schwab Active Equity Funds | Annual Report

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Table of Contents

Schwab Dividend Equity Fund

Portfolio Holdings as of October 31, 2017 (continued)

The following is a summary of the inputs used to value the fund’s investments as of October 31, 2017 (see financial note 2(a) for additional information):

Description	Quoted Prices in Active Markets for Identical Assets (Level 1)	Other Significant Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total
Assets
Common Stock¹	$1,459,702,024	$—	$—	$1,459,702,024
Short-Term Investment¹	—	9,116,201	—	9,116,201
Futures Contracts²	223,438	—	—	223,438
Total	$1,459,925,462	$9,116,201	$—	$1,469,041,663

¹	As categorized in Portfolio Holdings.
²	Futures contracts are valued at unrealized appreciation or depreciation.

The fund's policy is to recognize transfers between Level 1, Level 2 and Level 3 as of the beginning of the fiscal year. There were no transfers between Level 1, Level 2 and Level 3 for the period ended October 31, 2017.

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Table of Contents

Schwab Dividend Equity Fund

Statement of Assets and Liabilities

As of October 31, 2017

Assets
Investments in unaffiliated issuers, at value (cost $1,234,459,641)		$1,468,818,225
Deposit with broker for futures contracts		330,000
Receivables:
Dividends		1,549,199
Fund shares sold		654,974
Variation margin on futures contracts		8,800
Interest		152
Prepaid expenses	+	22,369
Total assets		1,471,383,719
Liabilities
Payables:
Investment adviser and administrator fees		776,583
Shareholder service fees		304,151
Fund shares redeemed		826,317
Accrued expenses	+	98,776
Total liabilities		2,005,827
Net Assets
Total assets		1,471,383,719
Total liabilities	–	2,005,827
Net assets		$1,469,377,892
Net Assets by Source
Capital received from investors		1,106,298,720
Net investment income not yet distributed		8,029,021
Net realized capital gains		120,468,129
Net unrealized capital appreciation		234,582,022

Net Asset Value (NAV)
Net Assets	÷	Shares Outstanding	=	NAV
$1,469,377,892		85,354,711		$17.21

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Table of Contents

Schwab Dividend Equity Fund

Statement of Operations

For the period November 1, 2016 through October 31, 2017

Investment Income
Dividends (net of foreign withholding tax of $3,445)		$40,082,507
Interest	+	32,251
Total investment income		40,114,758
Expenses
Investment adviser and administrator fees		9,331,647
Shareholder service fees		3,648,812
Shareholder reports		98,130
Portfolio accounting fees		57,223
Professional fees		40,732
Transfer agent fees		35,775
Custodian fees		35,409
Registration fees		25,916
Independent trustees’ fees		15,584
Interest expense		1,482
Other expenses	+	24,039
Total expenses		13,314,749
Expense reduction by CSIM and its affiliates	–	35,775
Net expenses	–	13,278,974
Net investment income		26,835,784
Realized and Unrealized Gains (Losses)
Net realized gains on investments		129,280,694
Net realized gains on futures contracts	+	548,820
Net realized gains		129,829,514
Net change in unrealized appreciation (depreciation) on investments		139,251,519
Net change in unrealized appreciation (depreciation) on futures contracts	+	288,550
Net change in unrealized appreciation (depreciation)	+	139,540,069
Net realized and unrealized gains		269,369,583
Increase in net assets resulting from operations		$296,205,367

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Table of Contents

Schwab Dividend Equity Fund

Statement of Changes in Net Assets

For the current and prior report periods

Operations
	11/1/16-10/31/17		11/1/15-10/31/16
Net investment income		$26,835,784	$36,519,772
Net realized gains (losses)		129,829,514	(9,553,682)
Net change in unrealized appreciation (depreciation)	+	139,540,069	(25,854,487)
Increase in net assets from operations		296,205,367	1,111,603
Distributions to Shareholders
Distributions from net investment income		(20,423,777)	(35,938,370)
Distributions from net realized gains	+	—	(195,568,378)
Total distributions		($20,423,777)	($231,506,748)

Transactions in Fund Shares
		11/1/16-10/31/17		11/1/15-10/31/16
		SHARES	VALUE	SHARES	VALUE
Shares sold		4,020,638	$64,372,892	8,869,700	$124,506,020
Shares reinvested		811,045	13,160,752	11,191,095	160,580,768
Shares redeemed	+	(27,826,825)	(443,615,673)	(25,625,568)	(366,896,176)
Net transactions in fund shares		(22,995,142)	($366,082,029)	(5,564,773)	($81,809,388)
Shares Outstanding and Net Assets
		11/1/16-10/31/17		11/1/15-10/31/16
		SHARES	NET ASSETS	SHARES	NET ASSETS
Beginning of period		108,349,853	$1,559,678,331	113,914,626	$1,871,882,864
Total decrease	+	(22,995,142)	(90,300,439)	(5,564,773)	(312,204,533)
End of period		85,354,711	$1,469,377,892	108,349,853	$1,559,678,331
Net investment income not yet distributed			$8,029,021		$1,273,539

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Schwab Active Equity Funds | Annual Report

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Table of Contents

Schwab Large-Cap Growth Fund

Financial Statements

Financial Highlights

	11/1/16– 10/31/17	11/1/15– 10/31/16	11/1/14– 10/31/15	11/1/13– 10/31/14	11/1/12– 10/31/13
Per-Share Data
Net asset value at beginning of period	$15.20	$17.68	$18.38	$15.66	$12.48
Income (loss) from investment operations:
Net investment income (loss)	0.08 ¹	0.20 ¹	0.13 ¹	0.11	0.14
Net realized and unrealized gains (losses)	4.04	(0.12)	1.08	2.70	3.17
Total from investment operations	4.12	0.08	1.21	2.81	3.31
Less distributions:
Distributions from net investment income	(0.17)	(0.20)	(0.09)	(0.09)	(0.13)
Distributions from net realized gains	(0.50)	(2.36)	(1.82)	—	—
Total distributions	(0.67)	(2.56)	(1.91)	(0.09)	(0.13)
Net asset value at end of period	$18.65	$15.20	$17.68	$18.38	$15.66
Total return	28.10%	0.54%	7.00%	18.06%	26.76%
Ratios/Supplemental Data
Ratios to average net assets:
Net operating expenses	0.99%	1.00% ²	0.99%	0.99%	0.99%
Gross operating expenses	1.04%	1.04%	1.03%	1.04%	1.05%
Net investment income (loss)	0.48%	1.32%	0.75%	0.60%	1.00%
Portfolio turnover rate	81%	84%	90%	82%	87%
Net assets, end of period (x 1,000,000)	$257	$219	$251	$256	$253

Calculated based on the average shares outstanding during the period.

The ratio of net operating expenses would have been 0.99%, if certain non-routine expenses had not been incurred.

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Schwab Active Equity Funds | Annual Report

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Table of Contents

Schwab Large-Cap Growth Fund

Portfolio Holdings as of October 31, 2017

This section shows all the securities in the fund's portfolio and their values as of the report date.

The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at www.sec.gov and may be viewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after calendar quarters on the fund's website at www.schwabfunds.com/schwabfunds_prospectus.

Security	Number of Shares	Value ($)
Common Stock 98.6% of net assets

Automobiles & Components 1.0%
Lear Corp.	14,968	2,628,231

Banks 0.6%
Essent Group Ltd. *	31,211	1,330,213
MGIC Investment Corp. *	24,964	356,985
		1,687,198

Capital Goods 10.1%
Allegion plc	14,035	1,170,379
Allison Transmission Holdings, Inc.	100,788	4,282,482
Caterpillar, Inc.	13,159	1,786,992
Ingersoll-Rand plc	20,195	1,789,277
Oshkosh Corp.	44,398	4,065,081
Owens Corning	49,634	4,104,235
The Boeing Co.	30,401	7,842,850
The Toro Co.	13,407	842,630
		25,883,926

Commercial & Professional Services 0.6%
ManpowerGroup, Inc.	8,459	1,042,826
Waste Management, Inc.	7,106	583,900
		1,626,726

Consumer Services 4.7%
Aramark	74,783	3,267,269
Darden Restaurants, Inc.	31,633	2,602,447
Hilton Worldwide Holdings, Inc.	5,211	376,651
Las Vegas Sands Corp.	36,205	2,294,673
Starbucks Corp.	27,406	1,502,945
Vail Resorts, Inc.	4,789	1,096,777
Wyndham Worldwide Corp.	9,422	1,006,741
		12,147,503

Diversified Financials 1.6%
Morgan Stanley	20,304	1,015,200
SEI Investments Co.	46,652	3,009,521
		4,024,721

Food, Beverage & Tobacco 5.0%
Campbell Soup Co.	15,685	742,998
Dr Pepper Snapple Group, Inc.	20,738	1,776,417
Ingredion, Inc.	13,166	1,650,358
Molson Coors Brewing Co., Class B	15,987	1,292,869
PepsiCo, Inc.	41,808	4,608,496
Philip Morris International, Inc.	14,489	1,516,129
TreeHouse Foods, Inc. *	18,998	1,261,087
		12,848,354

Security	Number of Shares	Value ($)
Health Care Equipment & Services 6.6%
Allscripts Healthcare Solutions, Inc. *	52,559	708,495
Baxter International, Inc.	40,849	2,633,535
Centene Corp. *	22,431	2,101,112
Express Scripts Holding Co. *	35,020	2,146,376
Hill-Rom Holdings, Inc.	24,693	1,992,972
Humana, Inc.	6,614	1,688,885
Masimo Corp. *	7,862	689,969
UnitedHealth Group, Inc.	7,980	1,677,556
Varian Medical Systems, Inc. *	8,022	835,812
WellCare Health Plans, Inc. *	12,422	2,456,326
		16,931,038

Household & Personal Products 1.1%
Kimberly-Clark Corp.	15,575	1,752,343
Spectrum Brands Holdings, Inc.	11,053	1,214,946
		2,967,289

Insurance 2.0%
Everest Re Group Ltd.	13,057	3,100,385
The Allstate Corp.	21,341	2,003,066
		5,103,451

Materials 2.8%
Axalta Coating Systems Ltd. *	88,356	2,937,837
Berry Global Group, Inc. *	54,631	3,247,813
LyondellBasell Industries N.V., Class A	4,285	443,626
PPG Industries, Inc.	4,478	520,523
		7,149,799

Media 3.9%
Comcast Corp., Class A	124,069	4,470,206
Live Nation Entertainment, Inc. *	105,071	4,600,008
Sinclair Broadcast Group, Inc., Class A	26,518	840,621
		9,910,835

Pharmaceuticals, Biotechnology & Life Sciences 6.6%
AbbVie, Inc.	44,624	4,027,316
Amgen, Inc.	13,328	2,335,332
Celgene Corp. *	31,589	3,189,541
Eli Lilly & Co.	53,846	4,412,141
Gilead Sciences, Inc.	7,408	555,304
Johnson & Johnson	6,550	913,136
Pfizer, Inc.	6,854	240,301
PRA Health Sciences, Inc. *	15,495	1,261,758
		16,934,829

Real Estate 3.8%
American Tower Corp.	16,017	2,301,162
DCT Industrial Trust, Inc.	26,733	1,551,049
Equity LifeStyle Properties, Inc.	16,336	1,445,409
PS Business Parks, Inc.	6,856	907,255

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Schwab Active Equity Funds | Annual Report

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Table of Contents

Schwab Large-Cap Growth Fund

Portfolio Holdings as of October 31, 2017 (continued)

Security	Number of Shares	Value ($)
Realogy Holdings Corp.	15,295	494,487
Retail Properties of America, Inc., Class A	142,833	1,745,419
Senior Housing Properties Trust	67,347	1,239,185
		9,683,966

Retailing 7.1%
Amazon.com, Inc. *	9,991	11,042,852
Best Buy Co., Inc.	17,690	990,286
Burlington Stores, Inc. *	10,767	1,010,914
Expedia, Inc.	4,638	578,173
Target Corp.	3,895	229,961
The Home Depot, Inc.	26,213	4,345,591
		18,197,777

Semiconductors & Semiconductor Equipment 3.8%
Applied Materials, Inc.	92,438	5,216,276
Lam Research Corp.	12,671	2,642,791
Micron Technology, Inc. *	12,204	540,759
Texas Instruments, Inc.	13,741	1,328,617
		9,728,443

Software & Services 24.4%
Accenture plc, Class A	10,882	1,549,162
Adobe Systems, Inc. *	5,303	928,873
Alliance Data Systems Corp.	3,954	884,628
Alphabet, Inc., Class A *	12,246	12,650,608
CDK Global, Inc.	10,068	639,922
Check Point Software Technologies Ltd. *	6,068	714,264
Conduent, Inc. *	11,948	184,955
Electronic Arts, Inc. *	14,109	1,687,436
Facebook, Inc., Class A *	37,065	6,673,924
Fidelity National Information Services, Inc.	4,685	434,581
First Data Corp., Class A *	73,082	1,301,590
GoDaddy, Inc., Class A *	28,967	1,352,759
International Business Machines Corp.	17,901	2,757,828
Intuit, Inc.	19,817	2,992,763
MasterCard, Inc., Class A	25,731	3,828,001
MAXIMUS, Inc.	48,941	3,251,151
Microsoft Corp.	145,750	12,123,485
Science Applications International Corp.	27,425	2,011,350
Total System Services, Inc.	51,677	3,723,328
Visa, Inc., Class A	27,409	3,014,442
		62,705,050

Technology Hardware & Equipment 9.5%
Apple, Inc.	95,490	16,141,630
ARRIS International plc *	59,260	1,688,910
CDW Corp.	25,856	1,809,920
F5 Networks, Inc. *	8,927	1,082,577
Juniper Networks, Inc.	39,901	990,742

Security	Number of Shares	Value ($)
NCR Corp. *	25,901	831,163
Tech Data Corp. *	14,251	1,322,065
Zebra Technologies Corp., Class A *	4,855	563,132
		24,430,139

Telecommunication Services 0.9%
AT&T, Inc.	31,861	1,072,123
T-Mobile US, Inc. *	22,320	1,334,066
		2,406,189

Transportation 1.4%
American Airlines Group, Inc.	26,873	1,258,194
Ryder System, Inc.	16,171	1,311,145
Union Pacific Corp.	5,421	627,697
XPO Logistics, Inc. *	4,180	289,883
		3,486,919

Utilities 1.1%
FirstEnergy Corp.	35,603	1,173,119
PG&E Corp.	27,346	1,579,778
		2,752,897
Total Common Stock
(Cost $192,955,063)		253,235,280
Security Rate, Maturity Date	Face Amount ($)	Value ($)
Short-Term Investments 1.0% of net assets

Time Deposits 1.0%
BNP Paribas
0.60%, 11/01/17 (a)	2,552,290	2,552,290
Wells Fargo
0.60%, 11/01/17 (a)	34,711	34,711
Total Short-Term Investments
(Cost $2,587,001)		2,587,001

*	Non-income producing security.
(a)	The rate shown is the current daily overnight rate.

₄₆

Schwab Active Equity Funds | Annual Report

See financial notes

Table of Contents

Schwab Large-Cap Growth Fund

Portfolio Holdings as of October 31, 2017 (continued)

The following is a summary of the inputs used to value the fund’s investments as of October 31, 2017 (see financial note 2(a) for additional information):

Description	Quoted Prices in Active Markets for Identical Assets (Level 1)	Other Significant Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total
Assets
Common Stock¹	$253,235,280	$—	$—	$253,235,280
Short-Term Investments¹	—	2,587,001	—	2,587,001
Futures Contracts²	78,203	—	—	78,203
Total	$253,313,483	$2,587,001	$—	$255,900,484

¹	As categorized in Portfolio Holdings.
²	Futures contracts are valued at unrealized appreciation or depreciation.

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Schwab Active Equity Funds | Annual Report

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Table of Contents

Schwab Large-Cap Growth Fund

Statement of Assets and Liabilities

As of October 31, 2017

Assets
Investments in unaffiliated issuers, at value (cost $195,542,064)		$255,822,281
Deposit with broker for futures contracts		63,000
Receivables:
Investments sold		2,372,116
Fund shares sold		908,549
Dividends		142,692
Variation margin on futures contracts		3,080
Interest		43
Prepaid expenses	+	15,565
Total assets		259,327,326
Liabilities
Payables:
Investments bought		2,116,831
Investment adviser and administrator fees		136,478
Shareholder service fees		51,711
Fund shares redeemed		132,412
Accrued expenses	+	60,842
Total liabilities		2,498,274
Net Assets
Total assets		259,327,326
Total liabilities	–	2,498,274
Net assets		$256,829,052
Net Assets by Source
Capital received from investors		177,384,155
Net investment income not yet distributed		706,094
Net realized capital gains		18,380,383
Net unrealized capital appreciation		60,358,420

Net Asset Value (NAV)
Net Assets	÷	Shares Outstanding	=	NAV
$256,829,052		13,772,563		$18.65

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Schwab Active Equity Funds | Annual Report

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Table of Contents

Schwab Large-Cap Growth Fund

Statement of Operations

For the period November 1, 2016 through October 31, 2017

Investment Income
Dividends		$3,453,965
Interest	+	9,344
Total investment income		3,463,309
Expenses
Investment adviser and administrator fees		1,690,678
Shareholder service fees		570,682
Shareholder reports		40,412
Portfolio accounting fees		38,563
Professional fees		35,386
Registration fees		21,072
Transfer agent fees		18,238
Custodian fees		13,232
Independent trustees’ fees		8,370
Interest expense		78
Other expenses	+	5,676
Total expenses		2,442,387
Expense reduction by CSIM and its affiliates	–	117,627
Net expenses	–	2,324,760
Net investment income		1,138,549
Realized and Unrealized Gains (Losses)
Net realized gains on investments		18,326,054
Net realized gains on futures contracts	+	34,802
Net realized gains		18,360,856
Net change in unrealized appreciation (depreciation) on investments		38,457,640
Net change in unrealized appreciation (depreciation) on futures contracts	+	77,389
Net change in unrealized appreciation (depreciation)	+	38,535,029
Net realized and unrealized gains		56,895,885
Increase in net assets resulting from operations		$58,034,434

₄₉

Schwab Active Equity Funds | Annual Report

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Table of Contents

Schwab Large-Cap Growth Fund

Statement of Changes in Net Assets

For the current and prior report periods

Operations
	11/1/16-10/31/17		11/1/15-10/31/16
Net investment income		$1,138,549	$3,012,896
Net realized gains		18,360,856	7,278,455
Net change in unrealized appreciation (depreciation)	+	38,535,029	(9,588,620)
Increase in net assets from operations		58,034,434	702,731
Distributions to Shareholders
Distributions from net investment income		(2,362,093)	(2,760,714)
Distributions from net realized gains	+	(7,123,142)	(33,117,333)
Total distributions		($9,485,235)	($35,878,047)

Transactions in Fund Shares
		11/1/16-10/31/17		11/1/15-10/31/16
		SHARES	VALUE	SHARES	VALUE
Shares sold		1,572,508	$26,376,506	1,470,303	$21,865,357
Shares reinvested		371,671	5,649,403	1,409,350	21,238,901
Shares redeemed	+	(2,577,225)	(42,665,864)	(2,663,649)	(39,879,178)
Net transactions in fund shares		(633,046)	($10,639,955)	216,004	$3,225,080
Shares Outstanding and Net Assets
		11/1/16-10/31/17		11/1/15-10/31/16
		SHARES	NET ASSETS	SHARES	NET ASSETS
Beginning of period		14,405,609	$218,919,808	14,189,605	$250,870,044
Total increase or decrease	+	(633,046)	37,909,244	216,004	(31,950,236)
End of period		13,772,563	$256,829,052	14,405,609	$218,919,808
Net investment income not yet distributed			$706,094		$1,950,703

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Schwab Active Equity Funds | Annual Report

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Table of Contents

Schwab Small-Cap Equity Fund

Financial Statements

Financial Highlights

	11/1/16– 10/31/17	11/1/15– 10/31/16	11/1/14– 10/31/15	11/1/13– 10/31/14	11/1/12– 10/31/13
Per-Share Data
Net asset value at beginning of period	$18.81	$21.19	$25.11	$24.87	$17.72
Income (loss) from investment operations:
Net investment income (loss)	(0.00) ¹^,²	0.07 ¹	0.05 ¹	(0.02)	0.09
Net realized and unrealized gains (losses)	4.86	0.12	0.63	2.71	7.16
Total from investment operations	4.86	0.19	0.68	2.69	7.25
Less distributions:
Distributions from net investment income	(0.09)	(0.04)	(0.02)	(0.07)	(0.10)
Distributions from net realized gains	—	(2.53)	(4.58)	(2.38)	—
Total distributions	(0.09)	(2.57)	(4.60)	(2.45)	(0.10)
Net asset value at end of period	$23.58	$18.81	$21.19	$25.11	$24.87
Total return	25.87%	1.47%	3.01%	11.67%	41.10%
Ratios/Supplemental Data
Ratios to average net assets:
Net operating expenses	1.10%	1.09%	1.09%	1.10%	1.10%
Gross operating expenses	1.10%	1.10%	1.09%	1.10%	1.11%
Net investment income (loss)	(0.01%)	0.37%	0.22%	(0.10%)	0.42%
Portfolio turnover rate	99%	85%	95%	103%	84%
Net assets, end of period (x 1,000,000)	$645	$571	$630	$666	$590

Calculated based on the average shares outstanding during the period.

Per-share amount was less than $0.005.

₅₁

Schwab Active Equity Funds | Annual Report

See financial notes

Table of Contents

Schwab Small-Cap Equity Fund

Portfolio Holdings as of October 31, 2017

This section shows all the securities in the fund's portfolio and their values as of the report date.

The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at www.sec.gov and may be viewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after calendar quarters on the fund's website at www.schwabfunds.com/schwabfunds_prospectus.

Security	Number of Shares	Value ($)
Common Stock 99.3% of net assets

Automobiles & Components 1.5%
Cooper-Standard Holding, Inc. *	30,162	3,362,460
Shiloh Industries, Inc. *	48,129	446,637
Tenneco, Inc.	42,528	2,471,302
Tower International, Inc.	102,559	3,117,794
		9,398,193

Banks 13.7%
1st Source Corp.	56,913	2,920,206
BancFirst Corp.	47,884	2,616,861
BCB Bancorp, Inc.	13,385	188,059
Camden National Corp.	22,292	962,346
Cathay General Bancorp	78,798	3,293,756
Central Pacific Financial Corp.	47,399	1,475,057
Central Valley Community Bancorp	14,736	297,667
Century Bancorp, Inc., Class A	5,913	502,309
Customers Bancorp, Inc. *	156,225	4,271,191
Essent Group Ltd. *	127,948	5,453,144
Farmers Capital Bank Corp.	14,285	594,256
Federal Agricultural Mortgage Corp., Class C	53,008	3,935,314
Financial Institutions, Inc.	103,033	3,379,482
First BanCorp *	1,077,391	5,548,564
First Business Financial Services, Inc.	5,678	126,222
First Citizens BancShares, Inc., Class A	18,240	7,387,200
First Community Bancshares, Inc.	27,051	808,013
First Financial Corp.	49,625	2,357,187
Great Southern Bancorp, Inc.	5,287	284,176
Hancock Holding Co.	58,728	2,862,990
Home Bancorp, Inc.	5,152	220,712
International Bancshares Corp.	190,492	7,733,975
Meta Financial Group, Inc.	17,081	1,490,317
MGIC Investment Corp. *	299,286	4,279,790
MidSouth Bancorp, Inc.	57,859	757,953
Northrim BanCorp, Inc.	11,563	375,798
OFG Bancorp	497,404	4,426,896
Peapack-Gladstone Financial Corp.	31,457	1,091,243
Preferred Bank	31,993	1,974,928
Radian Group, Inc.	219,181	4,594,034
Republic Bancorp, Inc., Class A	28,759	1,130,804
Sandy Spring Bancorp, Inc.	37,135	1,500,625
Shore Bancshares, Inc.	22,623	372,375
Southern Missouri Bancorp, Inc.	5,033	185,869
TCF Financial Corp.	288,335	5,253,464
Territorial Bancorp, Inc.	9,407	297,167
The Bank of N.T. Butterfield & Son Ltd.	42,740	1,596,339
United Community Banks, Inc.	75,941	2,082,302
		88,628,591

Capital Goods 11.3%
Aerojet Rocketdyne Holdings, Inc. *	99,080	3,128,946
Applied Industrial Technologies, Inc.	36,940	2,351,231
Argan, Inc.	23,481	1,614,319
Atkore International Group, Inc. *	174,765	3,374,712

Security	Number of Shares	Value ($)
Blue Bird Corp. *	14,538	300,210
Columbus McKinnon Corp.	39,585	1,565,983
Continental Building Products, Inc. *	31,431	839,208
Curtiss-Wright Corp.	33,704	3,985,498
EMCOR Group, Inc.	65,827	5,299,732
EnerSys	49,270	3,417,860
EnPro Industries, Inc.	15,102	1,264,641
General Cable Corp.	46,980	984,231
Global Brass & Copper Holdings, Inc.	117,943	4,128,005
GMS, Inc. *	57,508	1,958,147
Harsco Corp. *	124,944	2,655,060
HC2 Holdings, Inc. *	41,695	226,404
Hillenbrand, Inc.	127,214	5,031,314
Hyster-Yale Materials Handling, Inc.	4,625	363,016
Kadant, Inc.	12,911	1,466,690
Lydall, Inc. *	13,533	782,207
MasTec, Inc. *	50,305	2,190,783
Meritor, Inc. *	184,875	4,808,599
Moog, Inc., Class A *	35,988	3,158,307
Ply Gem Holdings, Inc. *	194,496	3,286,982
Regal Beloit Corp.	63,532	5,155,622
Rush Enterprises, Inc., Class A *	35,930	1,824,525
TPI Composites, Inc. *	87,960	2,203,398
Univar, Inc. *	95,623	2,844,784
Vectrus, Inc. *	45,139	1,377,191
Wabash National Corp.	61,548	1,384,830
		72,972,435

Commercial & Professional Services 3.7%
ACCO Brands Corp. *	138,146	1,802,805
ARC Document Solutions, Inc. *	59,050	261,001
Barrett Business Services, Inc.	27,912	1,696,771
CRA International, Inc.	25,359	1,071,671
Insperity, Inc.	40,201	3,815,075
LSC Communications, Inc.	64,670	1,046,361
Quad Graphics, Inc.	108,204	2,465,969
RR Donnelley & Sons Co.	139,716	1,285,387
SP Plus Corp. *	50,892	1,972,065
The Brink's Co.	43,046	3,275,801
TriNet Group, Inc. *	119,507	4,149,283
TrueBlue, Inc. *	47,911	1,298,388
		24,140,577

Consumer Durables & Apparel 1.1%
Fossil Group, Inc. *(a)	37,469	295,256
Hooker Furniture Corp.	7,569	358,771
La-Z-Boy, Inc.	46,685	1,258,161
Lifetime Brands, Inc.	18,263	340,605
M/I Homes, Inc. *	20,673	690,478
MCBC Holdings, Inc. *	79,030	1,807,416
Perry Ellis International, Inc. *	40,969	954,168
Taylor Morrison Home Corp., Class A *	56,709	1,369,522
		7,074,377

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Schwab Active Equity Funds | Annual Report

See financial notes

Table of Contents

Schwab Small-Cap Equity Fund

Portfolio Holdings as of October 31, 2017 (continued)

Security	Number of Shares	Value ($)
Consumer Services 2.9%
BJ's Restaurants, Inc. *	14,761	467,924
Bloomin' Brands, Inc.	197,583	3,513,026
Buffalo Wild Wings, Inc. *	30,088	3,556,402
Century Casinos, Inc. *	7,950	65,587
Dave & Buster's Entertainment, Inc. *	70,690	3,407,258
Penn National Gaming, Inc. *	50,696	1,322,659
Pinnacle Entertainment, Inc. *	73,250	1,894,977
Ruth's Hospitality Group, Inc.	197,261	4,162,207
		18,390,040

Diversified Financials 1.2%
Enova International, Inc. *	255,394	3,792,601
Evercore, Inc., Class A	47,343	3,792,174
		7,584,775

Energy 3.2%
Abraxas Petroleum Corp. *	307,819	655,655
Cloud Peak Energy, Inc. *	118,777	504,802
CVR Energy, Inc. (a)	14,621	401,347
Era Group, Inc. *	22,107	237,871
Evolution Petroleum Corp.	93,424	691,338
Green Plains, Inc.	100,648	1,851,923
McDermott International, Inc. *	564,450	3,736,659
Natural Gas Services Group, Inc. *	27,827	773,591
Overseas Shipholding Group, Inc., Class A *	404,125	957,776
Pacific Ethanol, Inc. *	132,535	636,168
Par Pacific Holdings, Inc. *	65,166	1,367,834
QEP Resources, Inc. *	105,975	948,476
REX American Resources Corp. *	13,705	1,208,507
Southwestern Energy Co. *	306,774	1,702,596
TETRA Technologies, Inc. *	469,711	1,333,979
Unit Corp. *	69,285	1,297,015
W&T Offshore, Inc. *	311,477	974,923
World Fuel Services Corp.	45,335	1,260,313
		20,540,773

Food & Staples Retailing 0.5%
The Andersons, Inc.	62,186	2,328,865
Village Super Market, Inc., Class A	25,626	614,768
		2,943,633

Food, Beverage & Tobacco 2.8%
Coca-Cola Bottling Co. Consolidated	20,345	4,589,018
Darling Ingredients, Inc. *	86,378	1,576,399
Dean Foods Co.	474,731	4,628,627
Fresh Del Monte Produce, Inc.	63,846	2,841,786
John B. Sanfilippo & Son, Inc.	3,226	189,850
The Boston Beer Co., Inc., Class A *	23,363	4,159,782
		17,985,462

Health Care Equipment & Services 4.5%
Allscripts Healthcare Solutions, Inc. *	21,360	287,933
Analogic Corp.	22,627	1,816,948
AngioDynamics, Inc. *	86,911	1,474,880
Cantel Medical Corp.	19,231	1,886,177
Cardiovascular Systems, Inc. *	28,839	694,155
Civitas Solutions, Inc. *	19,759	368,505
Cotiviti Holdings, Inc. *	24,467	860,260
Cutera, Inc. *	10,410	409,113
Exactech, Inc. *	40,144	1,680,026
Haemonetics Corp. *	50,300	2,392,268

Security	Number of Shares	Value ($)
Halyard Health, Inc. *	51,949	2,189,650
HealthSouth Corp.	45,164	2,083,867
Integer Holdings Corp. *	21,233	1,031,924
Lantheus Holdings, Inc. *	33,304	662,750
Magellan Health, Inc. *	7,550	644,015
Masimo Corp. *	40,827	3,582,978
Merit Medical Systems, Inc. *	17,638	671,126
Orthofix International N.V. *	35,085	1,885,117
Quality Systems, Inc. *	133,521	1,878,640
RadNet, Inc. *	89,732	982,565
Surgery Partners, Inc. *	29,309	271,108
Varex Imaging Corp. *	44,879	1,542,491
		29,296,496

Household & Personal Products 0.5%
HRG Group, Inc. *	153,256	2,485,812
USANA Health Sciences, Inc. *	14,193	932,480
		3,418,292

Insurance 3.0%
American Equity Investment Life Holding Co.	147,907	4,364,735
Argo Group International Holdings Ltd.	32,539	2,048,330
CNO Financial Group, Inc.	142,076	3,405,562
Crawford & Co., Class B	46,614	549,113
Employers Holdings, Inc.	26,005	1,240,438
HCI Group, Inc.	19,865	744,143
Health Insurance Innovations, Inc., Class A *(a)	15,140	325,510
Maiden Holdings Ltd.	157,639	1,300,522
National Western Life Group, Inc., Class A	11,548	4,129,334
The Navigators Group, Inc.	19,573	1,135,234
		19,242,921

Materials 3.4%
A. Schulman, Inc.	66,655	2,619,542
AK Steel Holding Corp. *	305,577	1,402,598
Boise Cascade Co. *	41,638	1,476,067
Century Aluminum Co. *	18,829	263,606
Chase Corp.	8,200	973,750
Domtar Corp.	10,170	481,244
Ingevity Corp. *	25,959	1,849,060
Innophos Holdings, Inc.	27,463	1,343,765
Koppers Holdings, Inc. *	35,229	1,710,368
Louisiana-Pacific Corp. *	60,134	1,634,442
Myers Industries, Inc.	22,989	496,562
OMNOVA Solutions, Inc. *	98,798	1,091,718
Rayonier Advanced Materials, Inc.	80,962	1,163,424
Schnitzer Steel Industries, Inc., Class A	10,664	314,055
SunCoke Energy, Inc. *	191,515	2,123,901
Trinseo S.A.	22,857	1,622,847
Worthington Industries, Inc.	31,139	1,416,825
		21,983,774

Media 2.5%
Gannett Co., Inc.	361,771	3,147,408
Gray Television, Inc. *	134,580	2,095,411
Meredith Corp.	36,475	1,933,175
Sinclair Broadcast Group, Inc., Class A	177,580	5,629,286
Time, Inc.	78,240	907,584
Townsquare Media, Inc., Class A *	12,062	125,927
tronc, Inc. *	155,706	2,302,113
		16,140,904

₅₃

Schwab Active Equity Funds | Annual Report

See financial notes

Table of Contents

Schwab Small-Cap Equity Fund

Portfolio Holdings as of October 31, 2017 (continued)

Security	Number of Shares	Value ($)
Pharmaceuticals, Biotechnology & Life Sciences 11.3%
Acorda Therapeutics, Inc. *	43,116	1,145,808
Akebia Therapeutics, Inc. *	65,782	1,193,943
AMAG Pharmaceuticals, Inc. *	105,477	1,655,989
Amphastar Pharmaceuticals, Inc. *	41,017	741,177
ANI Pharmaceuticals, Inc. *	14,684	852,847
Arena Pharmaceuticals, Inc. *	9,442	264,659
Array BioPharma, Inc. *	49,970	522,187
BioSpecifics Technologies Corp. *	33,812	1,547,575
Cambrex Corp. *	16,676	721,237
Catalent, Inc. *	146,404	6,235,346
Conatus Pharmaceuticals, Inc. *	136,356	625,874
Corcept Therapeutics, Inc. *	34,283	675,032
Cytokinetics, Inc. *	87,774	1,198,115
CytomX Therapeutics, Inc. *	40,702	814,040
Depomed, Inc. *	170,518	825,307
Eagle Pharmaceuticals, Inc. *	30,728	1,651,630
Emergent BioSolutions, Inc. *	107,729	4,415,812
Endo International plc *	59,172	377,517
Exact Sciences Corp. *	41,392	2,276,146
FibroGen, Inc. *	17,143	957,437
Genomic Health, Inc. *	122,143	4,005,069
Horizon Pharma plc *	93,023	1,261,392
Impax Laboratories, Inc. *	42,850	777,727
Innoviva, Inc. *	32,839	401,949
Intersect ENT, Inc. *	23,367	692,832
Lannett Co., Inc. *(a)	20,914	416,189
Ligand Pharmaceuticals, Inc. *	32,577	4,735,067
MiMedx Group, Inc. *(a)	141,335	1,792,128
Momenta Pharmaceuticals, Inc. *	56,982	803,446
Myriad Genetics, Inc. *	52,873	1,812,486
Novelion Therapeutics, Inc. *	109,883	518,648
PDL BioPharma, Inc. *	490,374	1,451,507
Phibro Animal Health Corp., Class A	56,039	2,109,868
PRA Health Sciences, Inc. *	58,411	4,756,408
Prestige Brands Holdings, Inc. *	120,462	5,649,668
PTC Therapeutics, Inc. *	21,852	409,506
Recro Pharma, Inc. *	36,040	311,025
Repligen Corp. *	52,923	1,968,736
Retrophin, Inc. *	101,950	2,535,496
Spectrum Pharmaceuticals, Inc. *	37,697	738,484
Sucampo Pharmaceuticals, Inc., Class A *	179,209	1,792,090
Supernus Pharmaceuticals, Inc. *	25,296	1,052,314
Vanda Pharmaceuticals, Inc. *	206,691	3,245,049
Veracyte, Inc. *	121,476	1,038,620
		72,973,382

Real Estate 8.0%
Ashford Hospitality Trust, Inc.	97,359	684,434
Consolidated-Tomoka Land Co.	16,604	971,666
Cousins Properties, Inc.	267,201	2,410,153
Gladstone Commercial Corp.	69,059	1,495,818
Global Net Lease, Inc.	154,564	3,338,582
iStar, Inc. *	230,231	2,693,703
Kite Realty Group Trust	253,232	4,732,906
Lexington Realty Trust	777,231	7,865,578
MedEquities Realty Trust, Inc.	183,632	2,133,804
Preferred Apartment Communities, Inc., Class A	75,109	1,490,913
PS Business Parks, Inc.	55,557	7,351,858
RE/MAX Holdings, Inc., Class A	52,644	3,500,826
Select Income REIT	141,499	3,418,616
Tier REIT, Inc.	206,308	4,037,447

Security	Number of Shares	Value ($)
UMH Properties, Inc.	180,111	2,690,858
Urstadt Biddle Properties, Inc., Class A	117,779	2,559,338
		51,376,500

Retailing 2.5%
Big Lots, Inc.	65,816	3,377,019
Caleres, Inc.	28,174	769,995
Nutrisystem, Inc.	12,220	610,389
Office Depot, Inc.	205,812	638,017
Rent-A-Center, Inc. (a)	509,639	5,065,812
Sally Beauty Holdings, Inc. *	18,154	314,246
Sleep Number Corp. *	36,099	1,173,218
Tailored Brands, Inc.	111,018	1,715,228
The Children's Place, Inc.	13,569	1,476,307
Tilly's, Inc., Class A	62,429	743,529
		15,883,760

Semiconductors & Semiconductor Equipment 4.0%
Advanced Energy Industries, Inc. *	50,886	4,311,062
Amkor Technology, Inc. *	239,260	2,768,238
Cabot Microelectronics Corp.	15,301	1,479,148
Cirrus Logic, Inc. *	92,559	5,183,304
Entegris, Inc.	78,917	2,584,532
IXYS Corp. *	12,463	307,836
Microsemi Corp. *	8,965	478,462
MKS Instruments, Inc.	60,022	6,521,390
Rudolph Technologies, Inc. *	28,871	801,170
Synaptics, Inc. *	11,035	409,619
Ultra Clean Holdings, Inc. *	37,957	968,663
		25,813,424

Software & Services 9.9%
Aspen Technology, Inc. *	60,128	3,879,459
Barracuda Networks, Inc. *	198,403	4,624,774
Blackbaud, Inc.	16,224	1,643,491
Blucora, Inc. *	54,010	1,172,017
Cardtronics plc, Class A *	91,169	2,087,770
DHI Group, Inc. *	340,225	748,495
Ebix, Inc.	23,583	1,602,465
Endurance International Group Holdings, Inc. *	190,431	1,561,534
Everi Holdings, Inc. *	57,438	476,161
EVERTEC, Inc.	197,390	2,960,850
Fair Isaac Corp.	19,521	2,833,668
Five9, Inc. *	72,123	1,819,663
Internap Corp. *	124,624	579,502
j2 Global, Inc.	59,727	4,428,160
MAXIMUS, Inc.	48,096	3,195,017
Pegasystems, Inc.	48,762	2,842,825
Progress Software Corp.	215,956	9,141,418
Proofpoint, Inc. *	18,340	1,694,799
Science Applications International Corp.	38,448	2,819,776
Stamps.com, Inc. *	10,493	2,354,629
Syntel, Inc. *	62,143	1,451,661
Travelport Worldwide Ltd.	195,599	3,068,948
Verint Systems, Inc. *	69,131	2,917,328
Web.com Group, Inc. *	125,702	3,029,418
Zix Corp. *	214,133	1,038,545
		63,972,373

Technology Hardware & Equipment 4.6%
Anixter International, Inc. *	17,298	1,188,373
Applied Optoelectronics, Inc. *(a)	25,471	1,037,688
CalAmp Corp. *	19,811	450,304

₅₄

Schwab Active Equity Funds | Annual Report

See financial notes

Table of Contents

Schwab Small-Cap Equity Fund

Portfolio Holdings as of October 31, 2017 (continued)

Security	Number of Shares	Value ($)
Ciena Corp. *	175,419	3,731,162
Comtech Telecommunications Corp.	11,703	251,731
Eastman Kodak Co. *	64,054	342,689
Electronics For Imaging, Inc. *	20,852	643,493
Extreme Networks, Inc. *	243,291	2,919,492
Finisar Corp. *	148,874	3,504,494
Insight Enterprises, Inc. *	29,697	1,337,850
Itron, Inc. *	24,917	1,947,264
NETGEAR, Inc. *	85,708	3,998,278
Plantronics, Inc.	40,317	1,828,779
Sanmina Corp. *	53,051	1,736,094
Tech Data Corp. *	24,632	2,285,111
TTM Technologies, Inc. *	165,192	2,606,730
		29,809,532

Telecommunication Services 0.7%
Frontier Communications Corp. (a)	69,936	846,925
IDT Corp., Class B	35,902	473,188
Telephone & Data Systems, Inc.	74,689	2,177,184
United States Cellular Corp. *	34,486	1,261,843
		4,759,140

Transportation 0.8%
Air Transport Services Group, Inc. *	54,159	1,310,648
Hawaiian Holdings, Inc. *	60,322	2,020,787
Radiant Logistics, Inc. *	50,414	246,020
SkyWest, Inc.	37,438	1,763,330
		5,340,785

Utilities 1.7%
Atlantic Power Corp. *	621,041	1,521,550
Consolidated Water Co., Ltd.	51,711	636,045
Dynegy, Inc. *	321,095	3,997,633
Northwest Natural Gas Co.	9,757	647,377
Spark Energy, Inc., Class A (a)	247,964	3,471,496
Unitil Corp.	7,201	374,452
		10,648,553
Total Common Stock
(Cost $558,240,111)		640,318,692

Security	Number of Shares	Value ($)
Other Investment Company 2.1% of net assets

Securities Lending Collateral 2.1%
Wells Fargo Government Money Market Fund, Select Class 0.96% (b)	13,351,015	13,351,015
Total Other Investment Company
(Cost $13,351,015)		13,351,015
Security Rate, Maturity Date	Face Amount ($)	Value ($)
Short-Term Investments 1.1% of net assets

Time Deposits 1.1%
Barclays Capital, Inc.
0.60%, 11/01/17 (c)	807,254	807,254
BNP Paribas
0.60%, 11/01/17 (c)	6,418,958	6,418,958
Total Short-Term Investments
(Cost $7,226,212)		7,226,212

*	Non-income producing security.
(a)	All or a portion of this security is on loan. Securities on loan were valued at $13,008,830.
(b)	The rate shown is the 7-day yield.
(c)	The rate shown is the current daily overnight rate.

REIT —

Real Estate Investment Trust

The following is a summary of the inputs used to value the fund’s investments as of October 31, 2017 (see financial note 2(a) for additional information):

Description	Quoted Prices in Active Markets for Identical Assets (Level 1)	Other Significant Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total
Assets
Common Stock¹	$640,318,692	$—	$—	$640,318,692
Other Investment Company¹	13,351,015	—	—	13,351,015
Short-Term Investments¹	—	7,226,212	—	7,226,212
Total	$653,669,707	$7,226,212	$—	$660,895,919

¹	As categorized in Portfolio Holdings.

The fund’s policy is to recognize transfers between Level 1, Level 2 and Level 3 as of the beginning of the fiscal year. There were no transfers between Level 1, Level 2 and Level 3 for the period ended October 31, 2017. Fund investments in underlying mutual funds are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.

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Schwab Active Equity Funds | Annual Report

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Table of Contents

Schwab Small-Cap Equity Fund

Statement of Assets and Liabilities

As of October 31, 2017

Assets
Investments in unaffiliated issuers, at value (cost $565,466,323) including securities on loan of $13,008,830		$647,544,904
Collateral invested for securities on loan, at value (cost $13,351,015)		13,351,015
Deposit with broker for futures contracts		385,250
Receivables:
Investments sold		4,249,103
Dividends		110,498
Income from securities on loan		82,507
Fund shares sold		80,674
Foreign tax reclaims		399
Interest		120
Prepaid expenses	+	13,330
Total assets		665,817,800
Liabilities
Collateral held for securities on loan		13,351,015
Payables:
Investments bought		5,604,497
Investment adviser and administrator fees		445,566
Shareholder service fees		125,886
Fund shares redeemed		1,280,798
Accrued expenses	+	75,218
Total liabilities		20,882,980
Net Assets
Total assets		665,817,800
Total liabilities	–	20,882,980
Net assets		$644,934,820
Net Assets by Source
Capital received from investors		480,932,822
Net realized capital gains		81,923,417
Net unrealized capital appreciation		82,078,581

Net Asset Value (NAV)
Net Assets	÷	Shares Outstanding	=	NAV
$644,934,820		27,354,578		$23.58

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Table of Contents

Schwab Small-Cap Equity Fund

Statement of Operations

For the period November 1, 2016 through October 31, 2017

Investment Income
Dividends (net of foreign withholding tax of $13,626)		$6,094,432
Interest		27,236
Securities on loan, net	+	666,011
Total investment income		6,787,679
Expenses
Investment adviser and administrator fees		5,068,161
Shareholder service fees		1,507,641
Shareholder reports		112,007
Portfolio accounting fees		50,307
Professional fees		35,587
Custodian fees		34,861
Registration fees		27,892
Transfer agent fees		23,285
Independent trustees’ fees		10,543
Interest expense		315
Other expenses	+	10,705
Total expenses		6,881,304
Expense reduction by CSIM and its affiliates	–	23,285
Net expenses	–	6,858,019
Net investment loss		(70,340)
Realized and Unrealized Gains (Losses)
Net realized gains on investments		88,824,323
Net realized gains on futures contracts	+	699,416
Net realized gains		89,523,739
Net change in unrealized appreciation (depreciation) on investments	+	52,242,477
Net realized and unrealized gains		141,766,216
Increase in net assets resulting from operations		$141,695,876

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Table of Contents

Schwab Small-Cap Equity Fund

Statement of Changes in Net Assets

For the current and prior report periods

Operations
	11/1/16-10/31/17		11/1/15-10/31/16
Net investment income (loss)		($70,340)	$2,188,154
Net realized gains (losses)		89,523,739	(6,273,721)
Net change in unrealized appreciation (depreciation)	+	52,242,477	12,056,144
Increase in net assets from operations		141,695,876	7,970,577
Distributions to Shareholders
Distributions from net investment income		(2,651,266)	(1,300,102)
Distributions from net realized gains	+	—	(75,008,179)
Total distributions		($2,651,266)	($76,308,281)

Transactions in Fund Shares
		11/1/16-10/31/17		11/1/15-10/31/16
		SHARES	VALUE	SHARES	VALUE
Shares sold		2,656,779	$58,042,781	4,063,466	$71,865,992
Shares reinvested		87,796	1,920,104	3,095,037	55,617,808
Shares redeemed	+	(5,773,585)	(125,530,925)	(6,528,284)	(118,052,147)
Net transactions in fund shares		(3,029,010)	($65,568,040)	630,219	$9,431,653
Shares Outstanding and Net Assets
		11/1/16-10/31/17		11/1/15-10/31/16
		SHARES	NET ASSETS	SHARES	NET ASSETS
Beginning of period		30,383,588	$571,458,250	29,753,369	$630,364,301
Total increase or decrease	+	(3,029,010)	73,476,570	630,219	(58,906,051)
End of period		27,354,578	$644,934,820	30,383,588	$571,458,250
Net investment income not yet distributed			$—		$1,410,331

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Schwab Active Equity Funds | Annual Report

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Table of Contents

Schwab Hedged Equity Fund

Financial Statements

Financial Highlights

	11/1/16– 10/31/17	11/1/15– 10/31/16	11/1/14– 10/31/15	11/1/13– 10/31/14	11/1/12– 10/31/13
Per-Share Data
Net asset value at beginning of period	$16.25	$17.46	$19.02	$18.62	$16.36
Income (loss) from investment operations:
Net investment income (loss)	0.03 ¹	0.03 ¹	(0.01) ¹	(0.08)	(0.10)
Net realized and unrealized gains (losses)	1.85	0.49	0.89	1.99	2.36
Total from investment operations	1.88	0.52	0.88	1.91	2.26
Less distributions:
Distributions from net investment income	—	(0.12)	—	—	—
Distributions from net realized gains	(0.48)	(1.61)	(2.44)	(1.51)	—
Total distributions	(0.48)	(1.73)	(2.44)	(1.51)	—
Net asset value at end of period	$17.65	$16.25	$17.46	$19.02	$18.62
Total return	11.71%	3.55%	4.84%	11.07%	13.81%
Ratios/Supplemental Data
Ratios to average net assets:
Net operating expenses (including dividend expense on short sales)	1.64%	1.85%	1.82%	1.99%	2.48%
Net operating expenses (excluding dividend expense on short sales)	1.33%	1.57% ²	1.54% ²	1.52% ²	1.48% ²
Gross operating expenses	1.65%	1.87%	1.84%	2.02%	2.52%
Net investment income (loss)	0.16%	0.22%	(0.06%)	(0.46%)	(0.49%)
Portfolio turnover rate	163%	142%	146%	142%	130%
Net assets, end of period (x 1,000,000)	$252	$204	$212	$200	$193

Calculated based on the average shares outstanding during the period.

The ratios of net operating expenses would have been 1.33%, if stock loan fees on short sales had not been incurred.

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Schwab Active Equity Funds | Annual Report

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Table of Contents

Schwab Hedged Equity Fund

Portfolio Holdings as of October 31, 2017

This section shows all the securities in the fund's portfolio and their values as of the report date.

The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at www.sec.gov and may be viewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after calendar quarters on the fund's website at www.schwabfunds.com/schwabfunds_prospectus.

Security	Number of Shares	Value ($)
Common Stock 100.1% of net assets

Automobiles & Components 0.5%
Lear Corp.	7,174	1,259,683

Banks 6.3%
Bank of America Corp. (a)	161,573	4,425,484
Citigroup, Inc. (a)	81,435	5,985,472
Citizens Financial Group, Inc.	10,352	393,480
Essent Group Ltd. *	13,780	587,304
First BanCorp *	193,237	995,171
Regions Financial Corp. (a)	172,765	2,674,402
Zions Bancorp	15,983	742,570
		15,803,883

Capital Goods 8.6%
Aerojet Rocketdyne Holdings, Inc. *	61,209	1,932,980
Allison Transmission Holdings, Inc. (a)	115,743	4,917,920
Argan, Inc.	9,099	625,556
Caterpillar, Inc.	4,786	649,939
Graco, Inc.	11,364	1,497,662
Harsco Corp. *	35,447	753,249
Hubbell, Inc.	4,448	559,647
Meritor, Inc. *	34,663	901,585
Oshkosh Corp. (a)	47,091	4,311,652
Ply Gem Holdings, Inc. *	15,229	257,370
Regal Beloit Corp.	10,280	834,222
The Boeing Co. (a)	11,366	2,932,201
United Rentals, Inc. *	3,988	564,222
Wabash National Corp.	34,618	778,905
		21,517,110

Commercial & Professional Services 1.9%
ACCO Brands Corp. *	29,257	381,804
Robert Half International, Inc.	32,931	1,704,838
The Brink's Co. (a)	25,771	1,961,173
TriNet Group, Inc. *	19,489	676,658
		4,724,473

Consumer Durables & Apparel 2.5%
Deckers Outdoor Corp. *	7,849	535,616
Hanesbrands, Inc.	16,220	364,950
Hasbro, Inc.	16,722	1,548,290
iRobot Corp. *	3,319	223,004
KB Home	15,122	414,796
M.D.C. Holdings, Inc.	11,490	425,590
PulteGroup, Inc.	9,486	286,762
Taylor Morrison Home Corp., Class A *	22,357	539,921
Toll Brothers, Inc.	30,924	1,423,741
Tupperware Brands Corp.	7,416	435,690
Whirlpool Corp.	958	157,045
		6,355,405

Security	Number of Shares	Value ($)
Consumer Services 2.4%
Carnival Corp.	5,594	371,386
Darden Restaurants, Inc.	8,342	686,296
Graham Holdings Co., Class B	1,091	607,087
Las Vegas Sands Corp. (a)	52,007	3,296,204
Royal Caribbean Cruises Ltd.	5,908	731,233
Wyndham Worldwide Corp.	3,911	417,890
		6,110,096

Diversified Financials 1.6%
Capital One Financial Corp.	8,105	747,119
Lazard Ltd., Class A	3,143	149,418
Moelis & Co., Class A	8,797	376,072
Morgan Stanley	15,485	774,250
Synchrony Financial	64,134	2,092,051
		4,138,910

Energy 7.8%
Anadarko Petroleum Corp.	41,503	2,049,003
Apache Corp.	22,560	933,307
Baker Hughes, a GE Co.	37,188	1,168,819
Cabot Oil & Gas Corp.	619	17,146
ConocoPhillips	40,475	2,070,296
CVR Energy, Inc.	17,373	476,889
Devon Energy Corp. (a)	87,739	3,237,569
Halliburton Co. (a)	58,596	2,504,393
Marathon Petroleum Corp.	22,398	1,338,057
Southwestern Energy Co. *(a)	360,735	2,002,079
The Williams Cos., Inc.	31,860	908,010
Valero Energy Corp. (a)	28,641	2,259,489
World Fuel Services Corp. (a)	22,140	615,492
		19,580,549

Food & Staples Retailing 1.7%
Costco Wholesale Corp.	10,254	1,651,715
CVS Health Corp.	7,389	506,368
Wal-Mart Stores, Inc. (a)	25,362	2,214,356
		4,372,439

Food, Beverage & Tobacco 4.0%
Archer-Daniels-Midland Co.	36,592	1,495,515
Bunge Ltd.	11,015	757,612
Campbell Soup Co.	23,882	1,131,290
Coca-Cola Bottling Co. Consolidated	5,927	1,336,894
Dean Foods Co. (a)	111,052	1,082,757
Fresh Del Monte Produce, Inc.	11,456	509,907
PepsiCo, Inc. (a)	22,506	2,480,836
Sanderson Farms, Inc.	3,497	523,046
TreeHouse Foods, Inc. *	11,588	769,212
		10,087,069

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Schwab Active Equity Funds | Annual Report

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Table of Contents

Schwab Hedged Equity Fund

Portfolio Holdings as of October 31, 2017 (continued)

Security	Number of Shares	Value ($)
Health Care Equipment & Services 4.2%
Baxter International, Inc.	8,016	516,792
Centene Corp. *	13,678	1,281,218
Express Scripts Holding Co. *(a)	61,993	3,799,551
Haemonetics Corp. *	14,719	700,036
Halyard Health, Inc. *	11,435	481,985
Hill-Rom Holdings, Inc.	2,937	237,045
Humana, Inc.	2,756	703,745
Masimo Corp. *	12,269	1,076,727
McKesson Corp. (a)	6,504	896,771
Varian Medical Systems, Inc. *	3,404	354,663
Zimmer Biomet Holdings, Inc.	5,021	610,654
		10,659,187

Household & Personal Products 1.4%
HRG Group, Inc. *(a)	123,034	1,995,611
Spectrum Brands Holdings, Inc.	8,486	932,781
USANA Health Sciences, Inc. *	9,235	606,740
		3,535,132

Insurance 5.0%
CNA Financial Corp.	18,204	985,383
Everest Re Group Ltd. (a)	8,471	2,011,439
Loews Corp.	39,939	1,977,380
The Allstate Corp. (a)	56,954	5,345,702
The Hartford Financial Services Group, Inc.	39,787	2,190,274
XL Group Ltd.	624	25,253
		12,535,431

Materials 2.1%
Axalta Coating Systems Ltd. *	52,949	1,760,554
Berry Global Group, Inc. *	33,714	2,004,297
Freeport-McMoRan, Inc. *	54,970	768,481
Stepan Co.	9,286	741,580
		5,274,912

Media 2.8%
Comcast Corp., Class A	36,752	1,324,175
Live Nation Entertainment, Inc. *(a)	113,802	4,982,251
Sinclair Broadcast Group, Inc., Class A	24,944	790,725
		7,097,151

Pharmaceuticals, Biotechnology & Life Sciences 9.2%
AbbVie, Inc. (a)	21,637	1,952,739
Alexion Pharmaceuticals, Inc. *	1,159	138,686
Amgen, Inc. (a)	26,282	4,605,132
Biogen, Inc. *	1,928	600,880
Celgene Corp. *(a)	37,317	3,767,898
Eli Lilly & Co. (a)	62,918	5,155,501
Emergent BioSolutions, Inc. *(a)	39,529	1,620,294
Gilead Sciences, Inc.	8,884	665,945
Pfizer, Inc. (a)	100,901	3,537,589
Prestige Brands Holdings, Inc. *	5,292	248,195
United Therapeutics Corp. *	3,509	416,132
Vertex Pharmaceuticals, Inc. *	3,315	484,752
		23,193,743

Real Estate 4.9%
Apartment Investment & Management Co., Class A	14,297	628,782
DCT Industrial Trust, Inc.	21,379	1,240,410

Security	Number of Shares	Value ($)
Equity LifeStyle Properties, Inc.	5,433	480,712
Realogy Holdings Corp.	61,968	2,003,425
Retail Properties of America, Inc., Class A (a)	315,339	3,853,443
Senior Housing Properties Trust (a)	119,973	2,207,503
UDR, Inc.	51,005	1,978,484
		12,392,759

Retailing 5.1%
Amazon.com, Inc. *(a)	4,426	4,891,969
Best Buy Co., Inc.	11,242	629,327
Burlington Stores, Inc. *	15,924	1,495,104
Expedia, Inc.	3,476	433,318
Lowe's Cos., Inc.	26,189	2,093,811
Rent-A-Center, Inc. (a)	121,412	1,206,835
Ross Stores, Inc.	10,243	650,328
Shutterfly, Inc. *(a)	18,347	783,417
The Gap, Inc.	21,928	569,909
		12,754,018

Semiconductors & Semiconductor Equipment 2.1%
Amkor Technology, Inc. *	49,434	571,951
Applied Materials, Inc.	12,525	706,786
Micron Technology, Inc. *	35,174	1,558,560
Microsemi Corp. *	3,250	173,452
MKS Instruments, Inc.	8,343	906,467
ON Semiconductor Corp. *	42,308	902,007
Skyworks Solutions, Inc.	4,409	502,009
		5,321,232

Software & Services 11.6%
Accenture plc, Class A	16,862	2,400,474
Alliance Data Systems Corp.	2,498	558,878
Alphabet, Inc., Class A *(a)	4,102	4,237,530
Barracuda Networks, Inc. *	65,035	1,515,966
Cardtronics plc, Class A *	8,092	185,307
CDK Global, Inc.	20,495	1,302,662
Convergys Corp.	12,925	332,560
Electronic Arts, Inc. *	9,195	1,099,722
Endurance International Group Holdings, Inc. *	136,991	1,123,326
First Data Corp., Class A *	75,536	1,345,296
Fortinet, Inc. *	6,235	245,721
GoDaddy, Inc., Class A *	33,827	1,579,721
IAC/InterActiveCorp *	7,208	930,193
MAXIMUS, Inc.	19,865	1,319,632
Microsoft Corp.	30,933	2,573,007
Nuance Communications, Inc. *	98,196	1,447,409
Progress Software Corp. (a)	122,312	5,177,467
Science Applications International Corp.	6,410	470,110
Take-Two Interactive Software, Inc. *	6,323	699,640
Verint Systems, Inc. *	4,367	184,287
VMware, Inc., Class A *	3,842	459,849
		29,188,757

Technology Hardware & Equipment 9.2%
Anixter International, Inc. *	1,893	130,049
Apple, Inc. (a)	23,229	3,926,630
ARRIS International plc *(a)	100,897	2,875,564
Benchmark Electronics, Inc. *(a)	8,350	258,432
CDW Corp.	10,357	724,990
Extreme Networks, Inc. *	39,428	473,136
F5 Networks, Inc. *	10,518	1,275,518
HP, Inc. (a)	77,407	1,668,121
Jabil, Inc.	84,245	2,382,449

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Schwab Active Equity Funds | Annual Report

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Table of Contents

Schwab Hedged Equity Fund

Portfolio Holdings as of October 31, 2017 (continued)

Security	Number of Shares	Value ($)
Juniper Networks, Inc. (a)	158,122	3,926,169
NCR Corp. *(a)	10,340	331,811
Seagate Technology plc	11,856	438,316
Tech Data Corp. *(a)	29,501	2,736,808
Western Digital Corp.	7,164	639,530
Zebra Technologies Corp., Class A *	11,541	1,338,641
		23,126,164

Telecommunication Services 1.7%
AT&T, Inc. (a)	76,565	2,576,412
T-Mobile US, Inc. *(a)	6,321	377,806
Telephone & Data Systems, Inc. (a)	40,772	1,188,504
		4,142,722

Transportation 0.5%
Alaska Air Group, Inc.	9,107	601,335
Ryder System, Inc.	8,742	708,801
		1,310,136

Utilities 3.0%
CenterPoint Energy, Inc.	63,001	1,863,570
FirstEnergy Corp. (a)	144,651	4,766,250
PG&E Corp.	9,500	548,815
UGI Corp.	9,103	435,670
		7,614,305
Total Common Stock
(Cost $220,986,366)		252,095,266

Other Investment Company 0.2% of net assets

Money Market Fund 0.2%
State Street Institutional U.S. Government Money Market Fund, Premier Class 0.96% (b)	495,697	495,697
Total Other Investment Company
(Cost $495,697)		495,697

₆₂

Schwab Active Equity Funds | Annual Report

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Table of Contents

Schwab Hedged Equity Fund

Portfolio Holdings as of October 31, 2017 (continued)

In addition to the above, the fund had the following short sale positions at 10/31/17:

Security	Number of Shares	Value ($)
Short Sales (41.7%) of net assets

Automobiles & Components (1.2%)
Adient plc	6,776	(571,624)
Tesla, Inc. *	7,195	(2,385,358)
		(2,956,982)

Banks (2.1%)
First Financial Bankshares, Inc.	5,905	(269,563)
Flagstar Bancorp, Inc. *	50,113	(1,872,723)
Nationstar Mortgage Holdings, Inc. *	139,204	(2,710,302)
United Bankshares, Inc.	14,324	(514,948)
		(5,367,536)

Capital Goods (4.7%)
Air Lease Corp.	27,691	(1,203,174)
Albany International Corp., Class A	34,930	(2,108,026)
Granite Construction, Inc.	9,864	(628,238)
John Bean Technologies Corp.	4,020	(429,738)
Johnson Controls International plc	31,414	(1,300,225)
KBR, Inc.	21,536	(422,752)
Mercury Systems, Inc. *	30,090	(1,518,642)
Proto Labs, Inc. *	15,037	(1,311,978)
Wabtec Corp.	37,244	(2,849,166)
		(11,771,939)

Commercial & Professional Services (1.4%)
Healthcare Services Group, Inc.	39,970	(2,114,014)
Verisk Analytics, Inc. *	17,864	(1,519,333)
		(3,633,347)

Consumer Durables & Apparel (1.7%)
G-III Apparel Group Ltd. *	18,532	(469,601)
Meritage Homes Corp. *	11,831	(576,170)
TRI Pointe Group, Inc. *	176,819	(3,127,928)
		(4,173,699)

Consumer Services (2.4%)
Caesars Entertainment Corp. *	89,171	(1,154,766)
Eldorado Resorts, Inc. *	49,367	(1,268,732)
ILG, Inc.	79,789	(2,367,339)
Yum! Brands, Inc.	16,086	(1,197,603)
		(5,988,440)

Diversified Financials (1.7%)
Cboe Global Markets, Inc.	15,336	(1,733,888)
LendingClub Corp. *	176,045	(1,001,696)
PRA Group, Inc. *	40,775	(1,137,623)
TD Ameritrade Holding Corp.	6,370	(318,436)
		(4,191,643)

Energy (4.1%)
Cheniere Energy, Inc. *	44,040	(2,058,430)
Diamondback Energy, Inc. *	6,580	(705,113)
Golar LNG Ltd.	101,320	(2,140,892)
Helmerich & Payne, Inc.	5,336	(289,798)
Matador Resources Co. *	14,765	(392,011)

Security	Number of Shares	Value ($)
Nabors Industries Ltd.	69,732	(392,591)
Oasis Petroleum, Inc. *	50,819	(480,240)
Parsley Energy, Inc., Class A *	21,839	(580,917)
RSP Permian, Inc. *	35,103	(1,207,894)
SM Energy Co.	63,668	(1,358,038)
US Silica Holdings, Inc.	20,651	(630,062)
		(10,235,986)

Food & Staples Retailing (0.4%)
Casey's General Stores, Inc.	6,761	(774,608)
PriceSmart, Inc.	3,039	(254,668)
		(1,029,276)

Food, Beverage & Tobacco (0.5%)
Altria Group, Inc.	11,833	(759,915)
Cal-Maine Foods, Inc. *	10,013	(450,585)
		(1,210,500)

Health Care Equipment & Services (1.9%)
Acadia Healthcare Co., Inc. *	13,653	(428,158)
DexCom, Inc. *	16,012	(720,060)
HealthEquity, Inc. *	9,251	(464,585)
ICU Medical, Inc. *	1,705	(325,825)
Nevro Corp. *	4,031	(353,035)
Novocure Ltd. *	29,853	(644,825)
Penumbra, Inc. *	18,744	(1,884,709)
		(4,821,197)

Household & Personal Products (1.0%)
Coty, Inc., Class A	79,053	(1,217,416)
WD-40 Co.	11,747	(1,302,155)
		(2,519,571)

Insurance (0.3%)
Kemper Corp.	5,430	(348,063)
RLI Corp.	5,798	(342,604)
		(690,667)

Materials (0.7%)
Balchem Corp.	4,998	(421,281)
Martin Marietta Materials, Inc.	6,377	(1,382,853)
		(1,804,134)

Media (0.9%)
Liberty Broadband Corp., Class A *	26,537	(2,287,755)

Pharmaceuticals, Biotechnology & Life Sciences (2.3%)
ACADIA Pharmaceuticals, Inc. *	24,372	(848,877)
Accelerate Diagnostics, Inc. *	23,211	(460,738)
Alnylam Pharmaceuticals, Inc. *	8,222	(1,001,769)
Bluebird Bio, Inc. *	4,979	(692,579)
Intercept Pharmaceuticals, Inc. *	7,763	(478,434)
Juno Therapeutics, Inc. *	7,284	(327,124)
Prothena Corp. plc *	8,497	(493,251)
TESARO, Inc. *	3,086	(357,266)
Ultragenyx Pharmaceutical, Inc. *	22,312	(1,028,360)
		(5,688,398)

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Table of Contents

Schwab Hedged Equity Fund

Portfolio Holdings as of October 31, 2017 (continued)

Security	Number of Shares	Value ($)
Real Estate (2.0%)
Acadia Realty Trust	68,401	(1,925,488)
Life Storage, Inc.	24,175	(1,953,824)
Weyerhaeuser Co.	34,101	(1,224,567)
		(5,103,879)

Retailing (1.3%)
CarMax, Inc. *	17,804	(1,337,080)
Ollie's Bargain Outlet Holdings, Inc. *	30,590	(1,365,844)
TripAdvisor, Inc. *	13,643	(511,612)
		(3,214,536)

Semiconductors & Semiconductor Equipment (1.4%)
Advanced Micro Devices, Inc. *	93,674	(1,029,009)
Inphi Corp. *	7,426	(304,318)
Integrated Device Technology, Inc. *	29,403	(913,551)
MACOM Technology Solutions Holdings, Inc. *	12,321	(503,683)
MaxLinear, Inc. *	6,445	(157,709)
Power Integrations, Inc.	6,223	(500,018)
Qorvo, Inc. *	2,066	(156,623)
		(3,564,911)

Software & Services (5.2%)
2U, Inc. *	32,101	(2,042,587)
Autodesk, Inc. *	14,232	(1,778,431)
Benefitfocus, Inc. *	10,863	(297,646)
Blackline, Inc. *	6,070	(215,606)
Callidus Software, Inc. *	37,093	(940,308)
Ellie Mae, Inc. *	15,757	(1,417,342)
FireEye, Inc. *	61,205	(1,035,589)
Gigamon, Inc. *	15,599	(600,562)
HubSpot, Inc. *	4,733	(409,641)
Nutanix, Inc., Class A *	12,511	(356,563)

Security	Number of Shares	Value ($)
PTC, Inc. *	10,801	(717,726)
Q2 Holdings, Inc. *	27,838	(1,184,507)
WEX, Inc. *	17,355	(2,144,904)
		(13,141,412)

Technology Hardware & Equipment (2.8%)
Arista Networks, Inc. *	3,607	(721,003)
Avnet, Inc.	12,242	(487,232)
II-VI, Inc. *	31,697	(1,432,704)
Infinera Corp. *	258,154	(2,160,749)
Lumentum Holdings, Inc. *	12,446	(785,965)
Pure Storage, Inc., Class A *	43,617	(716,627)
Universal Display Corp.	4,592	(672,728)
		(6,977,008)

Telecommunication Services (0.2%)
Iridium Communications, Inc. *	44,856	(538,272)

Transportation (0.4%)
C.H. Robinson Worldwide, Inc.	14,644	(1,149,993)

Utilities (1.1%)
American States Water Co.	10,703	(575,286)
New Jersey Resources Corp.	6,369	(283,102)
Ormat Technologies, Inc.	31,172	(2,023,998)
		(2,882,386)
Total Short Sales
(Proceeds $99,637,600)		(104,943,467)

*	Non-income producing security.
(a)	All or a portion of this security is held as collateral for short sales.
(b)	The rate shown is the 7-day yield.

The following is a summary of the inputs used to value the fund’s investments as of October 31, 2017 (see financial note 2(a) for additional information):

Description	Quoted Prices in Active Markets for Identical Assets (Level 1)	Other Significant Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total
Assets
Common Stock¹	$252,095,266	$—	$—	$252,095,266
Other Investment Company¹	495,697	—	—	495,697
Liabilities
Short Sales¹	(104,943,467)	—	—	(104,943,467)
Total	$147,647,496	$—	$—	$147,647,496

¹	As categorized in Portfolio Holdings.

The fund’s policy is to recognize transfers between Level 1, Level 2 and Level 3 as of the beginning of the fiscal year. There were no transfers between Level 1, Level 2 and Level 3 for the period ended October 31, 2017. Fund investments in underlying mutual funds are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.

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Table of Contents

Schwab Hedged Equity Fund

Statement of Assets and Liabilities

As of October 31, 2017

Assets
Investments in unaffiliated issuers, at value (cost $221,482,063)		$252,590,963
Deposit with broker for short sales		103,811,429
Receivables:
Investments sold		1,650,986
Fund shares sold		595,799
Dividends		179,257
Prepaid expenses	+	17,520
Total assets		358,845,954
Liabilities
Securities sold short, at value (proceeds $99,637,600)		104,943,467
Payables:
Investments bought		1,651,800
Investment adviser and administrator fees		223,935
Shareholder service fees		47,735
Fund shares redeemed		208,599
Dividends on short sales		3,973
Accrued expenses	+	54,047
Total liabilities		107,133,556
Net Assets
Total assets		358,845,954
Total liabilities	–	107,133,556
Net assets		$251,712,398
Net Assets by Source
Capital received from investors		211,023,980
Net investment income not yet distributed		124,921
Net realized capital gains		14,760,464
Net unrealized capital appreciation		25,803,033

Net Asset Value (NAV)
Net Assets	÷	Shares Outstanding	=	NAV
$251,712,398		14,259,142		$17.65

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Table of Contents

Schwab Hedged Equity Fund

Statement of Operations

For the period November 1, 2016 through October 31, 2017

Investment Income
Dividends		$4,420,112*
Expenses
Investment adviser and administrator fees		2,580,735
Shareholder service fees		531,236
Dividends on short sales		761,857
Professional fees		37,750
Portfolio accounting fees		31,172
Registration fees		29,309
Transfer agent fees		25,942
Shareholder reports		25,114
Custodian fees		21,878
Independent trustees’ fees		8,424
Interest expense		1,145
Other expenses	+	5,573
Total expenses		4,060,135
Expense reduction by CSIM and its affiliates	–	28,202
Net expenses	–	4,031,933
Net investment income		388,179
Realized and Unrealized Gains (Losses)
Net realized gains on investments		29,022,309
Net realized gains on futures contracts		170,443
Net realized losses on short sales	+	(13,964,217)
Net realized gains		15,228,535
Net change in unrealized appreciation (depreciation) on investments		19,481,542
Net change in unrealized appreciation (depreciation) on futures contracts		8,016
Net change in unrealized appreciation (depreciation) on short sales	+	(9,692,177)
Net change in unrealized appreciation (depreciation)	+	9,797,381
Net realized and unrealized gains		25,025,916
Increase in net assets resulting from operations		$25,414,095

*	Includes stock loan fees and rebates net of $53,632. See financial note 2(c) for additional information.

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Table of Contents

Schwab Hedged Equity Fund

Statement of Changes in Net Assets

For the current and prior report periods

Operations
	11/1/16-10/31/17		11/1/15-10/31/16
Net investment income		$388,179	$444,158
Net realized gains		15,228,535	7,153,419
Net change in unrealized appreciation (depreciation)	+	9,797,381	(1,484,704)
Increase in net assets from operations		25,414,095	6,112,873
Distributions to Shareholders
Distributions from net investment income		—	(1,497,867)
Distributions from net realized gains	+	(6,371,171)	(19,419,333)
Total distributions		($6,371,171)	($20,917,200)

Transactions in Fund Shares
		11/1/16-10/31/17		11/1/15-10/31/16
		SHARES	VALUE	SHARES	VALUE
Shares sold		5,562,308	$94,777,684	3,865,291	$61,376,265
Shares reinvested		311,206	5,290,506	1,134,070	17,510,038
Shares redeemed	+	(4,198,129)	(71,890,789)	(4,533,468)	(71,119,986)
Net transactions in fund shares		1,675,385	$28,177,401	465,893	$7,766,317
Shares Outstanding and Net Assets
		11/1/16-10/31/17		11/1/15-10/31/16
		SHARES	NET ASSETS	SHARES	NET ASSETS
Beginning of period		12,583,757	$204,492,073	12,117,864	$211,530,083
Total increase or decrease	+	1,675,385	47,220,325	465,893	(7,038,010)
End of period		14,259,142	$251,712,398	12,583,757	$204,492,073
Net investment income not yet distributed/Distributions in excess of net investment income			$124,921		($336,330)

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Table of Contents

Schwab Health Care Fund

Financial Statements

Financial Highlights

	11/1/16– 10/31/17	11/1/15– 10/31/16	11/1/14– 10/31/15	11/1/13– 10/31/14	11/1/12– 10/31/13
Per-Share Data
Net asset value at beginning of period	$21.56	$26.68	$28.19	$24.57	$20.59
Income (loss) from investment operations:
Net investment income (loss)	0.21 ¹	0.19 ¹	0.14 ¹	0.23	0.22
Net realized and unrealized gains (losses)	4.24	(1.52)	1.78	5.84	6.26
Total from investment operations	4.45	(1.33)	1.92	6.07	6.48
Less distributions:
Distributions from net investment income	(0.20)	(0.16)	(0.21)	(0.19)	(0.33)
Distributions from net realized gains	(0.37)	(3.63)	(3.22)	(2.26)	(2.17)
Total distributions	(0.57)	(3.79)	(3.43)	(2.45)	(2.50)
Net asset value at end of period	$25.44	$21.56	$26.68	$28.19	$24.57
Total return	21.10%	(5.78%)	7.26%	27.06%	35.46%
Ratios/Supplemental Data
Ratios to average net assets:
Net operating expenses	0.81%	0.80%	0.79%	0.80%	0.82%
Gross operating expenses	0.81%	0.80%	0.80%	0.81%	0.83%
Net investment income (loss)	0.89%	0.82%	0.52%	0.93%	1.06%
Portfolio turnover rate	42%	54%	75%	57%	54%
Net assets, end of period (x 1,000,000)	$853	$853	$1,118	$1,064	$816

Calculated based on the average shares outstanding during the period.

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Table of Contents

Schwab Health Care Fund

Portfolio Holdings as of October 31, 2017

This section shows all the securities in the fund's portfolio and their values as of the report date.

The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at www.sec.gov and may be viewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after calendar quarters on the fund's website at www.schwabfunds.com/schwabfunds_prospectus.

Security	Number of Shares	Value ($)
Common Stock 99.8% of net assets

Australia 1.4%
Ansell Ltd.	584,898	10,766,264
Cochlear Ltd.	11,283	1,519,869
		12,286,133

Denmark 4.2%
Bavarian Nordic A/S *	18,442	748,338
GN Store Nord A/S	54,500	1,803,599
H. Lundbeck A/S	112,006	6,658,510
Novo Nordisk A/S, Class B	532,514	26,513,246
		35,723,693

Finland 1.0%
Orion Oyj, Class B	206,670	8,470,342

France 0.6%
Sanofi	54,465	5,157,103

Germany 0.4%
Evotec AG *	173,374	3,689,337

Hong Kong 0.5%
Sihuan Pharmaceutical Holdings Group Ltd.	1,122,000	405,903
Sino Biopharmaceutical Ltd.	3,352,000	3,919,761
		4,325,664

Ireland 3.2%
Allergan plc	59,761	10,591,442
Medtronic plc	202,665	16,318,586
		26,910,028

Italy 1.4%
DiaSorin S.p.A.	10,100	918,747
Recordati S.p.A.	242,035	11,252,000
		12,170,747

Japan 4.9%
Astellas Pharma, Inc.	945,200	12,579,531
Hoya Corp.	340,200	18,483,314
Shionogi & Co., Ltd.	201,100	10,826,634
		41,889,479

Republic of Korea 0.4%
Celltrion, Inc. *	8,300	1,283,087
Hugel, Inc. *	4,789	1,837,616
		3,120,703

Security	Number of Shares	Value ($)
Switzerland 5.9%
Lonza Group AG *	75,610	20,086,639
Novartis AG	58,902	4,858,192
Roche Holding AG	108,188	25,005,598
		49,950,429

Taiwan 0.2%
St. Shine Optical Co., Ltd.	77,800	1,902,850

United Kingdom 2.9%
GlaxoSmithKline plc	1,053,343	18,904,695
Indivior plc *	1,121,707	5,535,270
		24,439,965

United States 72.8%
Abbott Laboratories	308,900	16,751,647
AbbVie, Inc.	177,199	15,992,210
Acorda Therapeutics, Inc. *	8,842	234,976
Agilent Technologies, Inc.	249,100	16,946,273
Alexion Pharmaceuticals, Inc. *	88,500	10,589,910
AMAG Pharmaceuticals, Inc. *	160,500	2,519,850
Amgen, Inc.	239,111	41,897,029
Analogic Corp.	10,200	819,060
AngioDynamics, Inc. *	78,500	1,332,145
Anthem, Inc.	11,600	2,426,836
Baxter International, Inc.	261,273	16,844,270
Becton, Dickinson & Co.	32,100	6,698,307
Biogen, Inc. *	65,014	20,262,263
Bioverativ, Inc. *	30,400	1,717,600
Boston Scientific Corp. *	185,900	5,231,226
Bristol-Myers Squibb Co.	275,834	17,007,924
Catalent, Inc. *	86,900	3,701,071
Celgene Corp. *	289,106	29,191,033
Centene Corp. *	30,026	2,812,535
Cigna Corp.	18,100	3,569,682
Community Health Systems, Inc. *	374,950	2,212,205
Danaher Corp.	8,500	784,295
DaVita, Inc. *	17,700	1,075,098
Eli Lilly & Co.	240,229	19,684,364
Emergent BioSolutions, Inc. *	249,700	10,235,203
Exelixis, Inc. *	133,875	3,318,761
Express Scripts Holding Co. *	276,060	16,919,717
Genomic Health, Inc. *	259,283	8,501,890
Gilead Sciences, Inc.	429,485	32,194,196
Haemonetics Corp. *	180,028	8,562,132
Halyard Health, Inc. *	249,000	10,495,350
Hill-Rom Holdings, Inc.	128,200	10,347,022
Humana, Inc.	47,700	12,180,195
Illumina, Inc. *	6,800	1,395,292
Johnson & Johnson	532,902	74,291,868
Ligand Pharmaceuticals, Inc. *	2,700	392,445
Magellan Health, Inc. *	10,600	904,180
Merck & Co., Inc.	532,710	29,346,994
Meridian Bioscience, Inc.	124,000	1,853,800
MiMedx Group, Inc. *(c)	111,900	1,418,892
Pfizer, Inc.	1,265,200	44,357,912

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Table of Contents

Schwab Health Care Fund

Portfolio Holdings as of October 31, 2017 (continued)

Security	Number of Shares	Value ($)
Prestige Brands Holdings, Inc. *	90,383	4,238,963
Quality Systems, Inc. *	444,600	6,255,522
Quest Diagnostics, Inc.	14,500	1,359,810
Quidel Corp. *	53,100	2,174,445
Regeneron Pharmaceuticals, Inc. *	11,100	4,469,082
Stryker Corp.	34,600	5,358,502
Thermo Fisher Scientific, Inc.	112,350	21,776,801
UnitedHealth Group, Inc.	188,491	39,624,578
Vanda Pharmaceuticals, Inc. *	50,500	792,850
Vertex Pharmaceuticals, Inc. *	110,300	16,129,169
WellCare Health Plans, Inc. *	28,876	5,709,940
Zimmer Biomet Holdings, Inc.	30,293	3,684,235
Zoetis, Inc.	45,800	2,922,956
		621,514,511
Total Common Stock
(Cost $623,265,369)		851,550,984

Other Investment Company 0.2% of net assets

Securities Lending Collateral 0.2%
Wells Fargo Government Money Market Fund, Select Class 0.96% (b)	1,352,189	1,352,189
Total Other Investment Company
(Cost $1,352,189)		1,352,189

Security Rate, Maturity Date	Face Amount ($)	Value ($)
Short-Term Investment 0.1% of net assets

Time Deposit 0.1%
Sumitomo Mitsui Banking Corp.
U.S. Dollar
0.60%, 11/01/17 (a)	1,125,321	1,125,321
Total Short-Term Investment
(Cost $1,125,321)		1,125,321

At 10/31/17, the values of certain foreign securities held by the fund aggregating $191,874,445 were adjusted from their closing market values in accordance with international fair valuation procedures approved by the fund's Board of Trustees. (See financial note 2(a) for additional information)

*	Non-income producing security.
(a)	The rate shown is the current daily overnight rate.
(b)	The rate shown is the 7-day yield.
(c)	All or a portion of this security is on loan. Securities on loan were valued at $1,347,947.

The following is a summary of the inputs used to value the fund’s investments as of October 31, 2017 (see financial note 2(a) for additional information):

Description	Quoted Prices in Active Markets for Identical Assets (Level 1)	Other Significant Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total
Assets
Common Stock¹	$648,424,539	$—	$—	$648,424,539
Australia	—	12,286,133	—	12,286,133
Denmark	—	35,723,693	—	35,723,693
Finland	—	8,470,342	—	8,470,342
France	—	5,157,103	—	5,157,103
Germany	—	3,689,337	—	3,689,337
Hong Kong	—	4,325,664	—	4,325,664
Italy	11,252,000	918,747	—	12,170,747
Japan	—	41,889,479	—	41,889,479
Republic of Korea	—	3,120,703	—	3,120,703
Switzerland	—	49,950,429	—	49,950,429
Taiwan	—	1,902,850	—	1,902,850
United Kingdom	—	24,439,965	—	24,439,965
Other Investment Company¹	1,352,189	—	—	1,352,189
Short-Term Investment¹	—	1,125,321	—	1,125,321
Total	$661,028,728	$192,999,766	$—	$854,028,494

¹	As categorized in Portfolio Holdings.

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Schwab Active Equity Funds | Annual Report

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Table of Contents

Schwab Health Care Fund

Portfolio Holdings as of October 31, 2017 (continued)

The fund's policy is to recognize transfers between Level 1, Level 2 and Level 3 as of the beginning of the fiscal year. There were security transfers in the amount of $11,337,985 from Level 2 to Level 1 for the period ended October 31, 2017. The transfers between Level 2 and Level 1 were primarily due to the use of international fair valuation by the fund. There were no transfers from Level 1 to Level 2 and no transfers in or out of Level 3 during the period. Fund investments in underlying mutual funds are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.

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Schwab Active Equity Funds | Annual Report

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Table of Contents

Schwab Health Care Fund

Statement of Assets and Liabilities

As of October 31, 2017

Assets
Investments in unaffiliated issuers, at value (cost $624,390,690) including securities on loan of $1,347,947		$852,676,305
Collateral invested for securities on loan, at value (cost $1,352,189)		1,352,189
Deposit with broker for futures contracts		462,000
Receivables:
Foreign tax reclaims		673,799
Dividends		535,858
Fund shares sold		195,505
Income from securities on loan		1,057
Interest		19
Prepaid expenses	+	14,433
Total assets		855,911,165
Liabilities
Collateral held for securities on loan		1,352,189
Payables:
Investment adviser and administrator fees		397,915
Shareholder service fees		186,864
Fund shares redeemed		649,635
Accrued expenses	+	81,495
Total liabilities		2,668,098
Net Assets
Total assets		855,911,165
Total liabilities	–	2,668,098
Net assets		$853,243,067
Net Assets by Source
Capital received from investors		568,330,424
Net investment income not yet distributed		6,387,444
Net realized capital gains		50,244,618
Net unrealized capital appreciation		228,280,581

Net Asset Value (NAV)
Net Assets	÷	Shares Outstanding	=	NAV
$853,243,067		33,537,830		$25.44

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Table of Contents

Schwab Health Care Fund

Statement of Operations

For the period November 1, 2016 through October 31, 2017

Investment Income
Dividends (net of foreign withholding tax of $486,068)		$14,450,906
Interest		22,922
Securities on loan, net	+	34,500
Total investment income		14,508,328
Expenses
Investment adviser and administrator fees		4,513,951
Shareholder service fees		2,073,375
Shareholder reports		89,649
Portfolio accounting fees		55,654
Custodian fees		52,895
Transfer agent fees		47,121
Professional fees		32,886
Registration fees		29,459
Independent trustees’ fees		11,853
Interest expense		3,627
Other expenses	+	21,464
Total expenses		6,931,934
Expense reduction by CSIM and its affiliates	–	47,121
Net expenses	–	6,884,813
Net investment income		7,623,515
Realized and Unrealized Gains (Losses)
Net realized gains on investments		50,703,907
Net realized gains on futures contracts		228,734
Net realized losses on foreign currency transactions	+	(129,352)
Net realized gains		50,803,289
Net change in unrealized appreciation (depreciation) on investments		103,013,111
Net change in unrealized appreciation (depreciation) on foreign currency translations	+	65,016
Net change in unrealized appreciation (depreciation)	+	103,078,127
Net realized and unrealized gains		153,881,416
Increase in net assets resulting from operations		$161,504,931

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Schwab Active Equity Funds | Annual Report

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Table of Contents

Schwab Health Care Fund

Statement of Changes in Net Assets

For the current and prior report periods

Operations
	11/1/16-10/31/17		11/1/15-10/31/16
Net investment income		$7,623,515	$8,080,909
Net realized gains		50,803,289	13,851,929
Net change in unrealized appreciation (depreciation)	+	103,078,127	(78,198,470)
Increase (decrease) in net assets from operations		161,504,931	(56,265,632)
Distributions to Shareholders
Distributions from net investment income		(7,795,978)	(6,691,995)
Distributions from net realized gains	+	(13,907,780)	(149,840,338)
Total distributions		($21,703,758)	($156,532,333)

Transactions in Fund Shares
		11/1/16-10/31/17		11/1/15-10/31/16
		SHARES	VALUE	SHARES	VALUE
Shares sold		2,602,137	$61,859,539	2,833,641	$64,956,918
Shares reinvested		885,124	19,145,216	6,099,701	139,195,182
Shares redeemed	+	(9,509,826)	(220,486,601)	(11,272,005)	(256,438,361)
Net transactions in fund shares		(6,022,565)	($139,481,846)	(2,338,663)	($52,286,261)
Shares Outstanding and Net Assets
		11/1/16-10/31/17		11/1/15-10/31/16
		SHARES	NET ASSETS	SHARES	NET ASSETS
Beginning of period		39,560,395	$852,923,740	41,899,058	$1,118,007,966
Total increase or decrease	+	(6,022,565)	319,327	(2,338,663)	(265,084,226)
End of period		33,537,830	$853,243,067	39,560,395	$852,923,740
Net investment income not yet distributed			$6,387,444		$6,748,836

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Schwab International Core Equity Fund

Financial Statements

Financial Highlights

	11/1/16– 10/31/17	11/1/15– 10/31/16	11/1/14– 10/31/15	11/1/13– 10/31/14	11/1/12– 10/31/13
Per-Share Data
Net asset value at beginning of period	$9.20	$9.62	$9.77	$9.82	$7.90
Income (loss) from investment operations:
Net investment income (loss)	0.22 ¹	0.22 ¹	0.19 ¹	0.29 ¹	0.20
Net realized and unrealized gains (losses)	2.08	(0.45)	(0.01)	(0.08)	1.93
Total from investment operations	2.30	(0.23)	0.18	0.21	2.13
Less distributions:
Distributions from net investment income	(0.23)	(0.19)	(0.15)	(0.26)	(0.21)
Distributions from net realized gains	—	—	(0.18)	—	—
Total distributions	(0.23)	(0.19)	(0.33)	(0.26)	(0.21)
Net asset value at end of period	$11.27	$9.20	$9.62	$9.77	$9.82
Total return	25.58%	(2.41%)	2.05%	2.20%	27.70%
Ratios/Supplemental Data
Ratios to average net assets:
Net operating expenses	0.86%	0.86%	0.86%	0.86%	0.86%
Gross operating expenses	0.90%	0.91%	0.92%	0.98%	1.10%
Net investment income (loss)	2.15%	2.40%	2.02%	2.95%	2.40%
Portfolio turnover rate	85%	90%	87%	90%	75%
Net assets, end of period (x 1,000,000)	$1,227	$772	$679	$423	$147

Calculated based on the average shares outstanding during the period.

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Schwab International Core Equity Fund

Portfolio Holdings as of October 31, 2017

This section shows all the securities in the fund's portfolio and their values as of the report date.

The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at www.sec.gov and may be viewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after calendar quarters on the fund's website at www.schwabfunds.com/schwabfunds_prospectus.

Security	Number of Shares	Value ($)
Common Stock 97.6% of net assets

Australia 5.6%
Aristocrat Leisure Ltd.	752,826	13,609,784
Australia & New Zealand Banking Group Ltd.	93,904	2,154,960
BHP Billiton Ltd.	193,955	3,993,300
carsales.com Ltd.	204,076	2,143,080
CIMIC Group Ltd.	88,826	3,295,345
Computershare Ltd.	549,403	6,567,856
Fortescue Metals Group Ltd.	463,040	1,646,387
National Australia Bank Ltd.	806,515	20,208,175
Qantas Airways Ltd.	2,866,164	13,527,230
Sandfire Resources NL	240,000	1,056,734
		68,202,851

Austria 0.3%
CA Immobilien Anlagen AG	33,253	949,001
Raiffeisen Bank International AG *	87,990	3,059,951
		4,008,952

Belgium 1.5%
bpost S.A.	75,292	2,122,787
KBC Group N.V.	131,342	10,910,436
UCB S.A.	71,025	5,170,328
		18,203,551

Brazil 0.3%
MRV Engenharia e Participacoes S.A.	787,700	3,046,008

Canada 0.4%
Enerflex Ltd.	60,429	822,052
Manulife Financial Corp.	120,400	2,420,879
Maple Leaf Foods, Inc.	63,079	1,636,015
		4,878,946

Denmark 3.2%
Dfds A/S	39,442	2,287,318
Novo Nordisk A/S, Class B	293,547	14,615,360
Orsted A/S	67,770	3,797,614
Sydbank A/S	110,760	4,323,899
Vestas Wind Systems A/S	165,178	14,582,702
		39,606,893

Finland 0.3%
UPM-Kymmene Oyj	107,560	3,230,270

France 9.0%
Air France-KLM *	445,785	6,979,954
Atos SE	20,028	3,110,663
BNP Paribas S.A.	75,877	5,922,156
Casino Guichard Perrachon S.A.	64,900	3,705,753

Security	Number of Shares	Value ($)
Eiffage S.A.	55,826	5,831,339
Gaztransport Et Technigaz S.A.	91,177	4,462,669
Hermes International	5,565	2,888,834
Ipsen S.A.	50,535	6,110,061
L'Oreal S.A.	46,257	10,295,116
LVMH Moet Hennessy Louis Vuitton SE	17,500	5,219,604
Metropole Television S.A.	192,466	4,449,560
Neopost S.A.	102,156	3,765,534
Orange S.A.	158,020	2,595,901
Peugeot S.A.	270,307	6,413,183
Sanofi	254,760	24,122,344
Thales S.A.	32,172	3,352,754
TOTAL S.A.	120,519	6,717,499
Veolia Environnement S.A.	174,426	4,132,256
		110,075,180

Germany 9.9%
Allianz SE	78,540	18,335,854
BASF SE	145,053	15,862,028
Beiersdorf AG	81,691	9,189,457
Continental AG	24,829	6,318,834
Covestro AG	241,930	23,256,622
Deutsche Lufthansa AG	289,596	9,304,096
Deutz AG	341,808	2,895,620
Fielmann AG	27,099	2,381,135
HOCHTIEF AG	7,476	1,320,587
Hugo Boss AG	120,264	10,756,336
Pfeiffer Vacuum Technology AG	21,968	3,527,501
Rheinmetall AG	24,640	2,926,452
RWE AG *	423,365	10,645,029
SAP SE	32,486	3,711,931
Siltronic AG *	9,000	1,343,229
		121,774,711

Greece 0.1%
Motor Oil (Hellas) Corinth Refineries S.A.	61,444	1,470,825

Hong Kong 4.4%
China Petroleum & Chemical Corp., Class H (b)	10,530,000	7,732,371
China Railway Group Ltd., Class H (b)	5,582,000	4,486,829
China Shenhua Energy Co., Ltd., Class H (b)	2,417,000	5,782,112
CK Asset Holdings Ltd.	534,000	4,394,730
Kingboard Chemical Holdings Ltd.	2,060,500	12,227,120
Shanghai Industrial Holdings Ltd.	1,380,000	4,239,314
Sino Biopharmaceutical Ltd.	1,874,000	2,191,418
Sinopec Shanghai Petrochemical Co., Ltd., Class H (b)	12,207,000	7,281,153
The Wharf Holdings Ltd.	250,000	2,277,036
Weichai Power Co., Ltd., Class H (b)	1,656,000	2,062,091
Zhejiang Expressway Co., Ltd., Class H (b)	976,000	1,206,966
		53,881,140

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Schwab International Core Equity Fund

Portfolio Holdings as of October 31, 2017 (continued)

Security	Number of Shares	Value ($)
Italy 1.1%
Assicurazioni Generali S.p.A.	80,980	1,473,816
DiaSorin S.p.A.	12,500	1,137,064
Fiat Chrysler Automobiles N.V. *	86,640	1,498,116
Moncler S.p.A.	178,089	5,055,694
Recordati S.p.A.	89,245	4,148,923
		13,313,613

Japan 22.9%
ANA Holdings, Inc.	106,000	4,074,109
Aozora Bank Ltd.	228,550	8,945,854
Astellas Pharma, Inc.	823,000	10,953,188
Bandai Namco Holdings, Inc.	158,800	5,441,766
Canon Marketing Japan, Inc.	74,100	1,863,922
Central Japan Railway Co.	15,945	2,896,356
Credit Saison Co., Ltd.	104,800	2,110,181
Daiichikosho Co., Ltd.	29,400	1,385,406
Daiwa House Industry Co., Ltd.	111,200	4,075,802
Elecom Co., Ltd.	69,100	1,384,670
Fujitsu Ltd.	297,700	2,319,826
Haseko Corp.	756,300	10,982,553
Hoya Corp.	199,500	10,838,981
ITOCHU Corp.	222,700	3,900,955
Japan Airlines Co., Ltd.	340,700	11,661,241
Japan Securities Finance Co., Ltd.	541,200	3,043,855
Kanamoto Co., Ltd.	80,000	2,630,076
Kenedix Office Investment Corp.	1,097	5,876,996
Kenedix, Inc.	1,042,044	6,092,407
Kirin Holdings Co., Ltd.	440,000	10,561,702
Matsumotokiyoshi Holdings Co., Ltd.	40,900	2,941,244
Mitsubishi UFJ Financial Group, Inc.	1,885,800	12,791,649
Mixi, Inc.	152,900	7,454,163
MS&AD Insurance Group Holdings, Inc.	40,600	1,379,276
Nexon Co., Ltd. *	120,900	3,252,105
Nihon Unisys Ltd.	258,052	4,274,447
Nippon Light Metal Holdings Co., Ltd.	787,200	2,317,017
Omron Corp.	65,000	3,642,306
ORIX Corp.	1,007,700	17,325,993
Prima Meat Packers Ltd.	307,000	2,006,103
Resona Holdings, Inc.	1,108,200	5,990,185
Sankyu, Inc.	169,180	6,994,443
Seino Holdings Co., Ltd.	85,000	1,240,099
Shionogi & Co., Ltd.	249,119	13,411,836
Showa Shell Sekiyu K.K.	435,100	5,132,979
SoftBank Group Corp.	91,200	8,082,338
Sony Corp.	274,300	11,475,253
Subaru Corp.	151,390	5,230,387
Suzuki Motor Corp.	106,900	5,855,262
T-Gaia Corp.	168,100	3,420,898
Taisei Corp.	72,000	3,989,303
The Kansai Electric Power Co., Inc.	445,900	6,106,196
TOKAI Holdings Corp.	1,004,000	8,027,501
Tomy Co., Ltd.	159,200	2,575,740
Toshiba TEC Corp.	827,000	4,823,190
Tosoh Corp.	380,000	8,200,679
Toyo Tire & Rubber Co., Ltd.	120,000	2,715,186
Toyota Boshoku Corp.	189,200	3,810,054
Ulvac, Inc.	84,732	6,002,755
		281,508,433

Netherlands 4.0%
BE Semiconductor Industries N.V.	84,180	6,615,051
Heineken Holding N.V.	104,274	9,678,939
Koninklijke KPN N.V.	485,979	1,672,191
Koninklijke Philips N.V.	104,119	4,243,151

Security	Number of Shares	Value ($)
RELX N.V.	130,233	2,940,243
SBM Offshore N.V.	143,953	2,569,002
Unilever N.V. CVA	374,380	21,747,697
		49,466,274

New Zealand 0.2%
Spark New Zealand Ltd.	826,000	2,081,120

Norway 0.7%
Austevoll Seafood A.S.A.	263,254	2,634,999
Telenor A.S.A.	289,771	6,152,922
		8,787,921

Republic of Korea 1.6%
Hugel, Inc. *	4,590	1,761,256
Samsung Electronics Co., Ltd.	7,285	17,958,288
		19,719,544

Singapore 1.8%
CapitaLand Ltd.	6,002,000	16,163,340
Singapore Technologies Engineering Ltd.	2,313,000	5,905,009
		22,068,349

South Africa 0.9%
Mondi Ltd.	474,295	11,377,042

Spain 1.6%
ACS Actividades de Construccion y Servicios S.A.	347,503	13,698,242
Banco Santander S.A.	598,095	4,054,671
Mediaset Espana Comunicacion S.A.	203,531	2,212,173
		19,965,086

Sweden 1.6%
Electrolux AB, B Shares	90,895	3,212,827
Hemfosa Fastigheter AB	272,296	3,308,294
JM AB	324,994	8,575,270
Svenska Cellulosa AB, S.C.A., B Shares	448,092	4,207,569
		19,303,960

Switzerland 9.3%
Adecco Group AG	193,378	15,342,091
Cembra Money Bank AG *	171,668	15,378,763
Inficon Holding AG *	4,835	3,003,053
Nestle S.A.	194,404	16,356,861
Pargesa Holding S.A.	112,377	9,410,631
Roche Holding AG	89,132	20,601,166
Schindler Holding AG	10,624	2,407,473
SGS S.A.	1,478	3,649,983
Sika AG	600	4,440,882
Swiss Life Holding AG *	20,402	7,091,108
Swisscom AG	5,660	2,859,571
UBS Group AG *	559,235	9,514,323
Zurich Insurance Group AG	14,368	4,384,612
		114,440,517

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Table of Contents

Schwab International Core Equity Fund

Portfolio Holdings as of October 31, 2017 (continued)

Security	Number of Shares	Value ($)
Taiwan 0.6%
CTBC Financial Holding Co., Ltd.	7,783,000	4,983,158
HannStar Display Corp.	5,469,000	2,124,087
		7,107,245

United Kingdom 16.3%
888 Holdings plc	367,409	1,223,351
Aviva plc	2,727,464	18,296,987
British American Tobacco plc	24,376	1,574,929
Carnival plc	255,471	16,842,759
Electrocomponents plc	604,793	5,578,020
GlaxoSmithKline plc	1,286,719	23,093,172
Grainger plc	755,539	2,794,214
HSBC Holdings plc	1,257,732	12,281,901
Imperial Brands plc	201,726	8,224,681
Legal & General Group plc	5,072,799	17,985,968
Lloyds Banking Group plc	6,994,245	6,339,797
Mondi plc	129,978	3,143,415
Moneysupermarket.com Group plc	1,316,058	5,679,000
Old Mutual plc	5,150,761	13,066,080
Paragon Banking Group plc	2,231,479	14,082,771
Rio Tinto plc	79,300	3,747,766
Royal Dutch Shell plc, B Shares	674,200	21,707,399
SSE plc	308,775	5,670,930
The Berkeley Group Holdings plc	65,710	3,264,873
The British Land Co., plc	633,587	5,058,686
Unilever plc	179,889	10,195,020
		199,851,719
Total Common Stock
(Cost $1,060,410,823)		1,197,370,150

Security	Number of Shares	Value ($)
Other Investment Company 1.9% of net assets

Money Market Fund 1.9%
State Street Institutional U.S. Government Money Market Fund, Premier Class 0.96% (a)	23,357,999	23,357,999
Total Other Investment Company
(Cost $23,357,999)		23,357,999

	Number of Contracts	Notional Amount ($)	Current Value/ Unrealized Appreciation ($)
Futures Contracts
Long
MSCI EAFE Index, e-mini, expires 12/15/17	100	10,037,000	203,804

At 10/31/17, the values of certain foreign securities held by the fund aggregating $1,157,804,680 were adjusted from their closing market values in accordance with international fair valuation procedures approved by the fund's Board of Trustees. (See financial note 2(a) for additional information).

*	Non-income producing security.
(a)	The rate shown is the 7-day yield.
(b)	Represents a China based company which is listed on the Hong Kong exchange and traded in Hong Kong dollars.

CVA —

Dutch Certificate

The following is a summary of the inputs used to value the fund’s investments as of October 31, 2017 (see financial note 2(a) for additional information):

Description	Quoted Prices in Active Markets for Identical Assets (Level 1)	Other Significant Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total
Assets
Common Stock¹	$—	$837,648,334	$—	$837,648,334
Austria	949,001	3,059,951	—	4,008,952
Brazil	3,046,008	—	—	3,046,008
Canada	4,878,946	—	—	4,878,946
Germany	3,527,501	118,247,210	—	121,774,711
Greece	1,470,825	—	—	1,470,825
Italy	4,148,923	9,164,690	—	13,313,613
South Africa	11,377,042	—	—	11,377,042
United Kingdom	10,167,224	189,684,495	—	199,851,719
Other Investment Company¹	23,357,999	—	—	23,357,999
Futures Contracts²	203,804	—	—	203,804
Total	$63,127,273	$1,157,804,680	$—	$1,220,931,953

¹	As categorized in Portfolio Holdings.
²	Futures contracts are valued at unrealized appreciation or depreciation.

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Table of Contents

Schwab International Core Equity Fund

Portfolio Holdings as of October 31, 2017 (continued)

The fund's policy is to recognize transfers between Level 1, Level 2 and Level 3 as of the beginning of the fiscal year. There were security transfers in the amount of $6,599,769 from Level 2 to Level 1 for the period ended October 31, 2017. The transfers between Level 2 and Level 1 were primarily due to the use of international fair valuation by the fund. There were no transfers from Level 1 to Level 2 and no transfers in or out of Level 3 during the period. Fund investments in underlying mutual funds are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.

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Schwab International Core Equity Fund

Statement of Assets and Liabilities

As of October 31, 2017

Assets
Investments in unaffiliated issuers, at value (cost $1,083,768,822)		$1,220,728,149
Foreign currency, at value (cost $340,008)		340,019
Deposit with broker for futures contracts		1,242,500
Receivables:
Fund shares sold		3,516,985
Dividends		2,655,877
Foreign tax reclaims		1,110,702
Variation margin on futures contracts		37,500
Prepaid expenses	+	28,429
Total assets		1,229,660,161
Liabilities
Payables:
Investments bought		1,292,024
Investment adviser and administrator fees		519,837
Shareholder service fees		253,298
Fund shares redeemed		499,609
Accrued expenses	+	168,050
Total liabilities		2,732,818
Net Assets
Total assets		1,229,660,161
Total liabilities	–	2,732,818
Net assets		$1,226,927,343
Net Assets by Source
Capital received from investors		1,068,212,582
Net investment income not yet distributed		20,102,206
Net realized capital gains		1,456,050
Net unrealized capital appreciation		137,156,505

Net Asset Value (NAV)
Net Assets	÷	Shares Outstanding	=	NAV
$1,226,927,343		108,821,803		$11.27

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Schwab International Core Equity Fund

Statement of Operations

For the period November 1, 2016 through October 31, 2017

Investment Income
Dividends (net of foreign withholding tax of $2,649,823)		$28,056,986
Expenses
Investment adviser and administrator fees		5,403,442
Shareholder service fees		2,282,390
Custodian fees		360,552
Portfolio accounting fees		79,344
Shareholder reports		78,003
Registration fees		67,152
Professional fees		46,663
Transfer agent fees		37,260
Independent trustees’ fees		12,086
Interest expense		1,697
Other expenses	+	23,374
Total expenses		8,391,963
Expense reduction by CSIM and its affiliates	–	378,266
Net expenses	–	8,013,697
Net investment income		20,043,289
Realized and Unrealized Gains (Losses)
Net realized gains on investments		60,317,165
Net realized gains on futures contracts		2,416,831
Net realized losses on foreign currency transactions	+	(209,217)
Net realized gains		62,524,779
Net change in unrealized appreciation (depreciation) on investments		122,013,904
Net change in unrealized appreciation (depreciation) on futures contracts		267,173
Net change in unrealized appreciation (depreciation) on foreign currency translations	+	73,704
Net change in unrealized appreciation (depreciation)	+	122,354,781
Net realized and unrealized gains		184,879,560
Increase in net assets resulting from operations		$204,922,849

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Schwab International Core Equity Fund

Statement of Changes in Net Assets

For the current and prior report periods

Operations
	11/1/16-10/31/17		11/1/15-10/31/16
Net investment income		$20,043,289	$17,231,802
Net realized gains (losses)		62,524,779	(42,955,497)
Net change in unrealized appreciation (depreciation)	+	122,354,781	10,627,127
Increase (decrease) in net assets from operations		204,922,849	(15,096,568)
Distributions to Shareholders
Distributions from net investment income		($18,825,782)	($13,757,023)

Transactions in Fund Shares
		11/1/16-10/31/17		11/1/15-10/31/16
		SHARES	VALUE	SHARES	VALUE
Shares sold		45,026,202	$469,685,880	32,702,600	$293,413,982
Shares reinvested		1,739,337	15,723,609	1,360,473	12,393,908
Shares redeemed	+	(21,803,712)	(216,356,541)	(20,795,558)	(184,509,327)
Net transactions in fund shares		24,961,827	$269,052,948	13,267,515	$121,298,563
Shares Outstanding and Net Assets
		11/1/16-10/31/17		11/1/15-10/31/16
		SHARES	NET ASSETS	SHARES	NET ASSETS
Beginning of period		83,859,976	$771,777,328	70,592,461	$679,332,356
Total increase	+	24,961,827	455,150,015	13,267,515	92,444,972
End of period		108,821,803	$1,226,927,343	83,859,976	$771,777,328
Net investment income not yet distributed			$20,102,206		$17,033,702

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Schwab Active Equity Funds

Financial Notes

1. Business Structure of the Funds:

SCHWAB CAPITAL TRUST (ORGANIZED MAY 7, 1993)
Schwab Core Equity Fund	Schwab Target 2045 Fund
Schwab Dividend Equity Fund	Schwab Target 2050 Fund
Schwab Large-Cap Growth Fund	Schwab Target 2055 Fund
Schwab Small-Cap Equity Fund	Schwab Target 2060 Fund
Schwab Hedged Equity Fund	Schwab Fundamental US Large Company Index Fund
Schwab Health Care Fund	Schwab Fundamental US Small Company Index Fund
Schwab International Core Equity Fund	Schwab Fundamental International Large Company Index Fund
Schwab ^® S&P 500 Index Fund	Schwab Fundamental International Small Company Index Fund
Schwab Small-Cap Index Fund^®	Schwab Fundamental Emerging Markets Large Company Index Fund
Schwab Total Stock Market Index Fund^®	Schwab Fundamental Global Real Estate Index Fund
Schwab International Index Fund^®	Schwab Target 2010 Index Fund
Schwab MarketTrack All Equity Portfolio™	Schwab Target 2015 Index Fund
Schwab MarketTrack Growth Portfolio™	Schwab Target 2020 Index Fund
Schwab MarketTrack Balanced Portfolio™	Schwab Target 2025 Index Fund
Schwab MarketTrack Conservative Portfolio™	Schwab Target 2030 Index Fund
Laudus Small-Cap MarketMasters Fund™	Schwab Target 2035 Index Fund
Laudus International MarketMasters Fund™	Schwab Target 2040 Index Fund
Schwab Balanced Fund™	Schwab Target 2045 Index Fund
Schwab Target 2010 Fund	Schwab Target 2050 Index Fund
Schwab Target 2015 Fund	Schwab Target 2055 Index Fund
Schwab Target 2020 Fund	Schwab Target 2060 Index Fund
Schwab Target 2025 Fund	Schwab^® Monthly Income Fund - Moderate Payout
Schwab Target 2030 Fund	Schwab^® Monthly Income Fund - Enhanced Payout
Schwab Target 2035 Fund	Schwab^® Monthly Income Fund - Maximum Payout
Schwab Target 2040 Fund

Each fund in this report offers one share class. Shares are bought and sold at closing net asset value per share (NAV), which is the price for all outstanding shares of a fund. Each share has a par value of 1/1,000 of a cent, and the funds’ Board of Trustees (the Board) may authorize the issuance of as many shares as necessary.

2. Significant Accounting Policies:

Effective August 1, 2017, the funds adopted disclosure requirement changes for SEC Regulation S-X. The adopted changes are reflected throughout this report.

(a) Security Valuation:

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Financial Notes (continued)

2. Significant Accounting Policies (continued):

The funds value the securities in their portfolios every business day. The funds use the following policies to value various types of securities:

�� Securities traded on an exchange or over-the-counter: Traded securities are valued at the closing value for the day, or, on days when no closing value has been reported, at the mean of the most recent bid and ask quotes. Securities that are primarily traded on foreign exchanges are valued at the official closing price or the last sales price on the exchange where the securities are principally traded with these values then translated into U.S. dollars at the current exchange rate, unless these securities are fair valued as discussed below.

• Futures contracts: Futures contracts are valued at their settlement prices as of the close of their exchanges.

• Underlying funds: Mutual funds are valued at their respective NAVs.

The three levels of the fair value hierarchy are as follows:

• Level 1—quoted prices in active markets for identical securities—Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities and futures contracts. Investments in mutual funds are valued daily at their NAVs, which are classified as Level 1 prices, without consideration to the classification level of the specific investments held by an underlying fund.

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Financial Notes (continued)

2. Significant Accounting Policies (continued):

provincial obligations. In addition, international securities whose markets close hours before the funds value their holdings may require fair valuations due to significant movement in the U.S. markets occurring after the daily close of the foreign markets. The Board has approved a vendor that calculates fair valuations of international equity securities based on a number of factors that appear to correlate to the movements in the U.S. markets.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The levels associated with valuing the funds’ investments as of October 31, 2017 are disclosed in the Portfolio Holdings.

(b) Accounting Policies for certain Portfolio Investments (if held):

Securities Lending: Under the trust’s Securities Lending Program, a fund (lender) may make short-term loans of its securities to another party (borrower) to generate additional revenue for the fund. The borrower pledges collateral in the form of cash, securities issued or fully guaranteed by the U.S. government or foreign governments, or letters of credit issued by a bank. Collateral at the individual loan level is required to be maintained on a daily marked-to-market basis in an amount at least equal to the current value of the securities loaned. The lending agent provides a fund with indemnification against borrower default (the borrower fails to return the security on loan) reducing the risk of loss as a result of default. The cash collateral of securities loaned is currently invested in money market portfolios operating under Rule 2a-7 of the 1940 Act. Each fund bears the risk of loss with respect to the investment of cash collateral. The terms of the securities lending agreement allow the funds or the lending agent to terminate any loan at any given time and the securities must be returned within the earlier of the standard trade settlement period or the specified time period under the relevant securities lending agreement. Securities lending income, as disclosed in each fund’s Statement of Operations, if applicable, represents the income earned from the investment of the cash collateral plus any fees paid by borrowers, less the fees paid to the lending agent and broker rebates which are subject to adjustments pursuant to the securities lending agreement. On loans not collateralized by cash, a fee is received from the borrower, and is allocated between a fund and the lending agent. The aggregate market value of securities loaned will not at any time exceed one-third of the total assets of a fund, including collateral received from the loan. Total costs and expenses, including lending agent fees and broker rebates, associated with securities lending activities under the trust’s Securities Lending Program paid to the unaffiliated lending agents start at 10% of gross lending revenue, with subsequent breakpoints to a low of 7.5%.

As of October 31, 2017, the funds had securities on loan, all of which were classified as common stocks. The value of the securities on loan and the related collateral as of October 31, 2017, if any, are disclosed in each fund’s Portfolio Holdings. The value of the securities on loan and the investment of cash collateral are also disclosed in each fund’s Statement of Assets and Liabilities.

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Financial Notes (continued)

2. Significant Accounting Policies (continued):

institution including, but not limited to, freeze, seizure or diminution. The funds bear the risk associated with the repayment of principal and payment of interest on such instruments by the institution with which the deposit is ultimately placed. Balances in the CMS Sweep are accounted for on a cost basis, which approximates market value.

Short Sales: When a fund sells securities short (sells securities it does not own), the fund identifies assets worth at least 100% of the value of the short securities as collateral. If the market value of the short securities subsequently falls, the fund can realize a gain by closing the short position. However, if the value rises, the fund typically would have to add to its collateral or close out its short position at a loss. The potential for losses associated with short positions is much greater than the original value of the securities sold short and may exceed amounts recorded in the Statement of Assets and Liabilities.

If a fund sells securities short, it records the proceeds received as an asset and the obligation to buy back the securities as a liability. At the time a short sale is initiated, the asset and liability are of equal value and effectively cancel each other out. Subsequently, the fund values the liability side of the transaction according to the market price of the securities sold short, and values the asset side according to the value of the proceeds. When a fund closes out a short position (buys the security), it records the outcome as a realized gain or loss. Dividends accrued on securities sold short are recorded as an expense on a fund’s records and presented in the Statement of Operations. A fund may also incur stock loan fees which represent the cost of borrowing securities used for short sale transactions. A fund may also earn rebates as an element of the broker arrangement, which are recorded as an offset to stock loan fees on short sales transactions. The stock loan fees on short sales are recognized on the Statement of Operations. In the event that rebates exceed the stock loan fees on short sales, the net rebates are recognized as a component of investment income on the Statement of Operations.

(d) Investment Income:

Interest income is recorded as it accrues. Dividends and distributions from portfolio securities and underlying funds are recorded on the date they are effective (the ex-dividend date), although the funds record certain foreign security dividends on the day they learn of the ex-dividend date. Any distributions from underlying funds are recorded in accordance with the character of the distributions as designated by the underlying funds.

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Financial Notes (continued)

2. Significant Accounting Policies (continued):

(e) Expenses:

(f) Distributions to Shareholders:

The funds make distributions from net investment income, if any, once a year, with the exception of Schwab Dividend Equity Fund which typically pays quarterly dividends. The funds make distributions from net realized capital gains, if any, once a year.

(g) Custody Credit:

Certain funds have an arrangement with their custodian bank, State Street Bank and Trust Company (State Street), under which the funds may receive a credit for their uninvested cash balance to offset their custody fees and accounting fees. The credit amounts, if any, are disclosed in the Statement of Operations as a reduction to a fund’s operating expenses.

(h) Accounting Estimates:

(i) Federal Income Taxes:

(j) Foreign Taxes:

(k) Indemnification:

3. Risk Factors:

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Financial Notes (continued)

3. Risk Factors (continued):

Management Risk. The funds’ investment adviser makes investment decisions for the funds using a strategy based largely on historical information. There is no guarantee that a strategy based on historical information will produce the desired results in the future. In addition, the portfolio optimization process used by each fund to assist in constructing the fund’s portfolio does not assure successful investment. Securities selected with the assistance of the process may be negatively impacted by factors or events not foreseen in developing the process. As a result, a fund may have a lower return than if it were managed using another process or strategy.

Growth Investing Risk. Growth stocks can be volatile. Growth companies usually invest a high portion of earnings in their businesses and may lack the dividends of value stocks that can cushion stock prices in a falling market. The prices of growth stocks are based largely on projections of the issuer’s future earnings and revenues. If a company’s earnings or revenues fall short of expectations, its stock price may fall dramatically. Growth stocks may also be more expensive relative to their earnings or assets compared to value or other stocks.

Dividend Paying Risk. To the extent that a fund invests in dividend paying stocks, the fund’s performance will correlate with the performance of the dividend paying stock segment of the stock market, and the fund may underperform funds that do not limit their investments to dividend paying stocks. If stocks held by a fund reduce or stop paying dividends, the fund’s ability to generate income may be affected.

Derivatives Risk. A fund’s use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Certain of these risks, such as liquidity risk, market risk and management risk, are discussed elsewhere in this section. A fund’s use of derivatives is also subject to lack of availability risk, credit risk, leverage risk, valuation risk, correlation risk and tax risk. Lack of availability risk is the risk that suitable derivative transactions may not be available in all circumstances for risk management or other purposes. Credit risk is the risk that the counterparty to a derivatives transaction may not fulfill its obligations. Leverage risk is the risk that a small percentage of assets invested in derivatives can have a disproportionately large impact on a fund. Valuation risk is the risk that a particular derivative may be valued incorrectly. Correlation risk is the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset, rate or index. Tax risk is the risk that the use of derivatives may cause a fund to realize higher amounts of short-term capital gains. A fund’s use of derivatives could reduce the fund’s performance, increase its volatility, and could cause the fund to lose more than the initial amount invested.

Liquidity Risk. A fund may be unable to sell certain securities, such as illiquid securities, readily at a favorable time or price, or the fund may have to sell them at a loss.

Exchange-Traded Fund (ETF) Risk. When a fund invests in an ETF, it will bear a proportionate share of the ETF’s expenses. In addition, lack of liquidity in the market for an ETF’s shares can result in its value being more volatile than the underlying portfolio of securities.

REITs Risk. A fund’s investments in real estate investment trusts (REITs) will be subject to the risks associated with the direct ownership of real estate, including fluctuations in the value of underlying properties, defaults by borrowers or tenants, changes in interest rates and risks related to general or local economic conditions. REITs are also subject to certain additional risks; for example, REITs are dependent upon specialized management skills and cash flows, and may have their investments in relatively few properties, a small geographic area or a single property type. Failure of a company to qualify as a REIT under federal tax law may have adverse consequences on a fund. In addition, REITs have their own expenses, and a fund will bear a proportionate share of those expenses.

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Financial Notes (continued)

3. Risk Factors (continued):

Short Sales Risk. To the extent a fund establishes both long and short positions in equity securities the fund’s long positions could decline in value at the same time that the value of the stocks sold short increase, thereby increasing the fund’s overall potential for loss. The price of a borrowed security in a short sale transaction may be more or less than the price at which the security was sold by the fund. A fund’s short sales may result in a loss if the prices of the borrowed securities rise and it costs more to replace the borrowed securities. In contrast to a fund’s long positions, the potential loss on the fund’s short positions is unlimited. In addition, the lender of the borrowed securities may require a fund to return the securities on short notice, which may require the fund to purchase the borrowed securities at an unfavorable price and could result in a loss to the fund.

Foreign Investment Risk. A fund’s investments in securities of foreign issuers may involve certain risks that are greater than those associated with investments in securities of U.S. issuers. These include risks of adverse changes in foreign economic, political, regulatory and other conditions; changes in currency exchange rates or exchange control regulations (including limitations on currency movements and exchanges); the imposition of economic sanctions or other government restrictions; differing accounting, auditing, financial reporting and legal standards and practices; differing securities market structures; and higher transaction costs. To the extent a fund’s investments in a single country or a limited number of countries represent a higher percentage of the fund’s assets, the fund assumes the risk that economic, political and social conditions in those countries will have a significant impact on its investment performance and it may be subject to increased price volatility.

Emerging Markets Risk. Emerging market countries may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. Emerging market countries often have less uniformity in accounting and reporting requirements and greater risk associated with the custody of securities. In addition, the financial stability of issuers (including governments) in emerging market countries may be more precarious than in other countries. As a result, there will tend to be an increased risk of price volatility associated with a fund’s investments in emerging market countries and, at times, it may be difficult to value such investments.

Concentration Risk. The investments of certain funds are concentrated in issuers doing business in the same sector, and therefore, the companies in which a fund invests will be affected by many of the same factors, such as legislative or regulatory changes, intense competition for market share, and other competitive challenges. In addition, a fund is subject to the risks that stocks of these companies may underperform other segments of the equity market or stock market as a whole and are likely to have above-average volatility.

Securities Lending Risk. Securities lending involves the risk of loss of rights in, or delay in recovery of, the loaned securities if the borrower fails to return the security loaned or becomes insolvent.

Please refer to the funds’ prospectus for a more complete description of the principal risks of investing in the funds.

4. Affiliates and Affiliated Transactions:

Investment Adviser

For its advisory and administrative services to the funds, CSIM is entitled to receive an annual fee, payable monthly, based on a percentage of each fund’s average daily net assets as follows:

% of Average Daily Net Assets	Schwab Core Equity Fund	Schwab Dividend Equity Fund	Schwab Large-Cap Growth Fund	Schwab Small-Cap Equity Fund	Schwab Hedged Equity Fund	Schwab International Core Equity Fund
Flat rate	0.47%	0.62%	0.72%	0.81%	1.05%	0.58%

% of Average Daily Net Assets	Schwab Health Care Fund
First $500 million	0.54%
$500 million to $1 billion	0.515%
Over $1 billion	0.49%

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Financial Notes (continued)

4. Affiliates and Affiliated Transactions (continued):

For the period ended October 31, 2017, the aggregate advisory fee paid to CSIM by the Schwab Health Care Fund was 0.53%, as a percentage of the fund’s average daily net assets.

Shareholder Servicing

The Board has adopted a Shareholder Servicing Plan (the Plan) on behalf of the funds. The Plan enables each fund to bear expenses relating to the provision by financial intermediaries, including Charles Schwab & Co., Inc. (a broker-dealer affiliate of CSIM, Schwab) (together, service providers), of certain account maintenance, customer liaison and shareholder services to the current shareholders of the funds.

Pursuant to the Plan, each fund’s shares are subject to an annual shareholder servicing fee up to 0.25%. The shareholder servicing fee paid to a particular service provider is made pursuant to its written agreement with Schwab, as distributor of the funds (or, in the case of payments made to Schwab acting as a service provider, pursuant to Schwab’s written agreement with the funds), and a fund will pay no more than 0.25% of the average annual daily net asset value of the fund shares owned by shareholders holding shares through such service provider. Payments under the Plan are made as described above without regard to whether the fee is more or less than the service provider’s actual cost of providing the services, and if more, such excess may be retained as profit by the service provider.

Expense Limitation

Schwab Core Equity Fund	Schwab Dividend Equity Fund	Schwab Large-Cap Growth Fund	Schwab Small-Cap Equity Fund	Schwab Hedged Equity Fund	Schwab Health Care Fund	Schwab International Core Equity Fund
0.75%	0.89%	0.99%	1.12%	1.33%*	0.82%	0.86%

*	Excludes dividends and stock loan fees paid on securities sold short.

Investments from Affiliates

Certain Schwab funds may own shares of other Schwab funds. The table below reflects the percentages of shares of each fund in this report that are owned by other Schwab funds as of October 31, 2017, as applicable:

	Underlying Funds
	Schwab Core Equity Fund	Schwab Dividend Equity Fund	Schwab Small-Cap Equity Fund	Schwab International Core Equity Fund
Schwab Balanced Fund	5.7%	—%	—%	—%
Schwab Monthly Income Fund - Enhanced Payout	—%	1.3%	—%	—%
Schwab Monthly Income Fund - Maximum Payout	—%	0.4%	—%	—%
Schwab Monthly Income Fund - Moderate Payout	—%	0.9%	—%	—%
Schwab Target 2010 Fund	0.1%	0.0%*	0.1%	0.2%
Schwab Target 2015 Fund	0.3%	0.0%*	0.2%	0.3%
Schwab Target 2020 Fund	2.0%	0.1%	1.8%	2.4%
Schwab Target 2025 Fund	2.3%	0.3%	2.2%	2.5%
Schwab Target 2030 Fund	4.9%	0.9%	5.1%	5.4%
Schwab Target 2035 Fund	2.4%	0.6%	2.7%	2.7%
Schwab Target 2040 Fund	5.8%	1.8%	7.3%	6.8%
Schwab Target 2045 Fund	0.7%	0.3%	1.0%	0.9%
Schwab Target 2050 Fund	0.6%	0.3%	0.9%	0.8%
Schwab Target 2055 Fund	0.4%	0.2%	0.6%	0.5%
Schwab Target 2060 Fund	0.0%*	0.0%*	0.1%	0.0%*

*	Less than 0.05%

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Financial Notes (continued)

4. Affiliates and Affiliated Transactions (continued):

Interfund Borrowing and Lending

5. Board of Trustees:

6. Borrowing from Banks:

7. Purchases and Sales/Maturities of Investment Securities:

For the period ended October 31, 2017, purchases and sales/maturities of securities (excluding short-term obligations) were as follows:

	Purchases of Securities	Sales/Maturities of Securities
Schwab Core Equity Fund	$1,867,546,452	$2,067,695,195
Schwab Dividend Equity Fund	1,042,018,047	1,404,508,600
Schwab Large-Cap Growth Fund	188,204,312	209,717,982
Schwab Small-Cap Equity Fund	609,926,641	672,728,153
Schwab Hedged Equity Fund*	393,973,073	392,866,682
Schwab Health Care Fund	357,505,440	510,764,946
Schwab International Core Equity Fund	1,028,419,204	772,709,597

*	Including securities sold short.

8. Derivatives:

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Financial Notes (continued)

8. Derivatives (continued):

futures contracts are presented on the Statement of Operations. Refer to financial note 2(b) for the funds’ accounting policies with respect to futures contracts and financial note 3 for disclosures concerning the risks of investing in futures contracts. During the period ended October 31, 2017, the month-end average notional amounts of futures contracts held by the funds and the month-end average number of contracts held were as follows:

	Notional Amounts	Number of Contracts
Schwab Core Equity Fund	$3,714,846	31
Schwab Dividend Equity Fund	2,607,877	22
Schwab Large-Cap Growth Fund	832,712	7
Schwab Small-Cap Equity Fund	3,561,847	50
Schwab Hedged Equity Fund	656,377	6
Schwab Health Care Fund	2,736,028	22
Schwab International Core Equity Fund	11,487,710	122

9. Redemption Fee:

	Current Period (11/1/16-10/31/17)	Prior Period (11/1/15-10/31/16)
Schwab Core Equity Fund	$1,679	$21,676
Schwab Dividend Equity Fund	11,570	10,131
Schwab Large-Cap Growth Fund	2,514	590
Schwab Small-Cap Equity Fund	4,073	4,174
Schwab Hedged Equity Fund	9,890	4,852
Schwab Health Care Fund	8,956	28,881
Schwab International Core Equity Fund	3,125	20,115

10. Federal Income Taxes:

As of October 31, 2017, the tax basis cost of the funds’ investments and gross unrealized appreciation and depreciation were as follows:

	Schwab Core Equity Fund	Schwab Dividend Equity Fund	Schwab Large-Cap Growth Fund	Schwab Small-Cap Equity Fund	Schwab Hedged Equity Fund	Schwab Health Care Fund	Schwab International Core Equity Fund
Tax cost	$1,878,180,773	$1,234,706,178	$195,632,518	$579,457,851	$122,201,807	$626,376,002	$1,093,351,243
Gross unrealized appreciation	$509,590,727	$273,095,635	$64,564,674	$114,431,054	$55,425,970	$250,685,118	$144,176,751
Gross unrealized depreciation	(34,007,123)	(38,760,150)	(4,296,708)	(32,992,986)	(29,980,281)	(23,032,626)	(16,596,041)
Net unrealized appreciation (depreciation)	$475,583,604	$234,335,485	$60,267,966	$81,438,068	$25,445,689	$227,652,492	$127,580,710

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Financial Notes (continued)

10. Federal Income Taxes (continued):

As of October 31, 2017, the components of distributable earnings on a tax basis were as follows:

	Schwab Core Equity Fund	Schwab Dividend Equity Fund	Schwab Large-Cap Growth Fund	Schwab Small-Cap Equity Fund	Schwab Hedged Equity Fund
Undistributed ordinary income	$100,064,119	$49,214,888	$8,526,630	$20,942,807	$124,921
Undistributed long-term capital gains	145,683,901	79,528,799	10,650,301	61,621,123	15,117,808
Net unrealized appreciation (depreciation) on investments	475,583,604	234,335,485	60,267,966	81,438,068	25,445,689
Total	$721,331,624	$363,079,172	$79,444,897	$164,001,998	$40,688,418

	Schwab Health Care Fund	Schwab International Core Equity Fund
Undistributed ordinary income	$13,442,245	$27,614,289
Undistributed long-term capital gains	43,822,940	3,526,388
Net unrealized appreciation (depreciation) on investments	227,652,492	127,580,710
Net other unrealized appreciation (depreciation)	(5,034)	(6,626)
Total	$284,912,643	$158,714,761

Capital loss carryforwards may be used to offset future realized capital gains for federal income tax purposes. As of October 31, 2017, the funds had no capital loss carryforwards.

For the year ended October 31, 2017, the funds had capital loss carryforwards utilized as follows:

	Schwab Core Equity Fund	Schwab Dividend Equity Fund	Schwab Large-Cap Growth Fund	Schwab Small-Cap Equity Fund	Schwab Hedged Equity Fund
Capital loss carryforwards utilized	$1,636,581	$9,117,909	$—	$5,776,732	$—

	Schwab Health Care Fund	Schwab International Core Equity Fund
Capital loss carryforwards utilized	$—	$57,779,085

The tax basis components of distributions paid during the current and prior fiscal years were as follows:

	Schwab Core Equity Fund	Schwab Dividend Equity Fund	Schwab Large-Cap Growth Fund	Schwab Small-Cap Equity Fund	Schwab Hedged Equity Fund
Current period distributions
Ordinary income	$35,084,460	$20,423,777	$2,362,093	$2,651,266	$4,574,882
Long-term capital gains	—	—	7,123,142	—	1,796,289
Prior period distributions
Ordinary income	$91,137,043	$70,215,756	$10,837,735	$11,811,855	$5,415,180
Long-term capital gains	245,370,769	161,290,992	25,040,312	64,496,426	15,502,020

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Financial Notes (continued)

10. Federal Income Taxes (continued):

	Schwab Health Care Fund	Schwab International Core Equity Fund
Current period distributions
Ordinary income	$7,795,978	$18,825,782
Long-term capital gains	13,907,780	—
Prior period distributions
Ordinary income	$61,724,249	$13,757,023
Long-term capital gains	94,808,084	—

	Schwab Core Equity Fund	Schwab Dividend Equity Fund	Schwab Large-Cap Growth Fund	Schwab Small-Cap Equity Fund	Schwab Hedged Equity Fund
Capital shares	$—	$—	$—	$—	$—
Undistributed net investment income	200,113	343,475	(21,065)	1,311,275	73,072
Net realized capital gains (losses)	(200,113)	(343,475)	21,065	(1,311,275)	(73,072)

	Schwab Health Care Fund	Schwab International Core Equity Fund
Capital shares	$—	$—
Undistributed net investment income	(188,929)	1,850,997
Net realized capital gains (losses)	188,929	(1,850,997)

11. Custody Out-of-Pocket Fee Reimbursement:

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11. Custody Out-of-Pocket Fee Reimbursement (continued):

	State Street to Fund	State Street to CSIM
Schwab Core Equity Fund	$618	$3,030
Schwab Dividend Equity Fund	131	1,433
Schwab Large-Cap Growth Fund	—	1,391
Schwab Small-Cap Equity Fund	101	1,383
Schwab Hedged Equity Fund	194	1,194
Schwab Health Care Fund	—	2,324
Schwab International Core Equity Fund	—	5,806

12. Subsequent Events:

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Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Schwab Capital Trust and Shareholders of Schwab Core Equity Fund, Schwab Dividend Equity Fund, Schwab Large-Cap Growth Fund, Schwab Small-Cap Equity Fund, Schwab Hedged Equity Fund, Schwab Health Care Fund and Schwab International Core Equity Fund

In our opinion, the accompanying statements of assets and liabilities, including the portfolio holdings, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Schwab Core Equity Fund, Schwab Dividend Equity Fund, Schwab Large-Cap Growth Fund, Schwab Small-Cap Equity Fund, Schwab Hedged Equity Fund, Schwab Health Care Fund and Schwab International Core Equity Fund (seven of the funds constituting Schwab Capital Trust, hereafter referred to as the “Funds”) as of October 31, 2017, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities as of October 31, 2017 by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
San Francisco, California
December 15, 2017

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Other Federal Tax Information (unaudited)

Schwab International Core Equity Fund elects to pass through under section 853 of the Internal Revenue Code foreign tax credit of $2,631,545 to its shareholders for the year ended October 31, 2017. The respective foreign source income on the fund is $30,565,932.

For corporate shareholders, the following percentage of the funds’ dividend distributions paid during the fiscal year ended October 31, 2017, qualify for the corporate dividends received deduction:

	Percentage
Schwab Core Equity Fund	88.35
Schwab Dividend Equity Fund	55.71
Schwab Large-Cap Growth Fund	88.54
Schwab Small-Cap Equity Fund	60.99
Schwab Hedged Equity Fund	63.09
Schwab Health Care Fund	95.45
Schwab International Core Equity Fund	—

For the fiscal year ended October 31, 2017, the funds designate the following amounts of the dividend distributions as qualified dividends for the purpose of the maximum rate under section 1(h)(11) of the Internal Revenue Code. Shareholders will be notified in January 2018 via IRS form 1099 of the amounts for use in preparing their 2017 income tax return.


Schwab Core Equity Fund	$31,058,080
Schwab Dividend Equity Fund	11,619,647
Schwab Large-Cap Growth Fund	2,096,796
Schwab Small-Cap Equity Fund	1,661,323
Schwab Hedged Equity Fund	2,966,930
Schwab Health Care Fund	7,795,978
Schwab International Core Equity Fund	21,047,063

Under section 852(b)(3)(C) of the Internal Revenue Code, the funds hereby designate the following amounts as long-term capital gain dividends for the fiscal year ended October 31, 2017:


Schwab Core Equity Fund	$—
Schwab Dividend Equity Fund	—
Schwab Large-Cap Growth Fund	7,123,142
Schwab Small-Cap Equity Fund	—
Schwab Hedged Equity Fund	1,796,289
Schwab Health Care Fund	13,907,780
Schwab International Core Equity Fund	—

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Investment Advisory Agreement Approval

The Investment Company Act of 1940, as amended, requires that initial approval of, as well as the continuation of, a fund’s investment advisory agreement must be specifically approved (1) by the vote of the trustees or by a vote of the shareholders of the fund, and (2) by the vote of a majority of the trustees who are not parties to the investment advisory agreement or “interested persons” of any party (the Independent Trustees), cast in person at a meeting called for the purpose of voting on such approval. In connection with such approvals, the fund’s trustees must request and evaluate, and the investment adviser is required to furnish, such information as may be reasonably necessary to evaluate the terms of the investment advisory agreement.

The Board of Trustees (the Board or the Trustees, as appropriate) calls and holds one or more meetings each year that are dedicated, in whole or in part, to considering whether to renew the investment advisory and administration agreement (the Agreement) between Schwab Capital Trust (the Trust) and Charles Schwab Investment Management, Inc. (CSIM) with respect to the existing funds in the Trust, including Schwab Core Equity Fund, Schwab Dividend Equity Fund, Schwab Large-Cap Growth Fund, Schwab Small-Cap Equity Fund, Schwab Hedged Equity Fund, Schwab Health Care Fund and Schwab International Core Equity Fund (each, a Fund and collectively, the Funds), and to review certain other agreements pursuant to which CSIM provides investment advisory services to certain other registered investment companies. In preparation for the meeting(s), the Board requests and reviews a wide variety of materials provided by CSIM, including information about affiliates, personnel, business goals and priorities, profitability, third-party oversight, corporate structure and operations. As part of the renewal process, Independent Trustees’ legal counsel sends an information request letter to CSIM seeking certain relevant information. The responses by CSIM are provided to the Trustees for their review prior to their meeting, and the Trustees are provided with the opportunity to request any additional materials. The Board also receives data provided by an independent provider of investment company data. This information is in addition to the detailed information about the Funds that the Board reviews during the course of each year, including information that relates to the Funds’ operations and performance, legal and compliance matters, risk management, portfolio turnover, and sales and marketing activity. The Independent Trustees receive advice from Independent Trustees’ legal counsel, including a memorandum regarding the responsibilities of trustees for the approval of investment advisory agreements. In addition, the Independent Trustees meet in executive session outside the presence of Fund management and participate in question and answer sessions with representatives of CSIM.

The Board, including a majority of the Independent Trustees, considered information specifically relating to its consideration of the continuance of the Agreement with respect to the Funds at meetings held on April 19, 2017, and June 6, 2017, and approved the renewal of the Agreement with respect to the Funds for an additional one-year term at the meeting held on June 6, 2017.

The Board’s approval of the Agreement with respect to the Funds was based on consideration and evaluation of a variety of specific factors discussed at these meetings and at prior meetings, including:

1.	the nature, extent and quality of the services provided to the Funds under the Agreement, including the resources of CSIM and its affiliates dedicated to the Funds;
2.	each Fund’s investment performance and how it compared to that of certain other comparable mutual funds;
3.	each Fund’s expenses and how those expenses compared to those of certain other comparable mutual funds, exchange-traded funds and other accounts;
4.	the profitability of CSIM and its affiliates, including Charles Schwab & Co., Inc. (Schwab), with respect to each Fund, including both direct and indirect benefits accruing to CSIM and its affiliates; and
5.	the extent to which economies of scale would be realized as the Funds grow and whether fee levels in the Agreement reflect those economies of scale for the benefit of Fund investors.

Nature, Extent and Quality of Services. The Board considered the nature, extent and quality of the services provided by CSIM to the Funds and the resources of CSIM and its affiliates dedicated to the Funds. In this regard, the Trustees evaluated, among other things, CSIM’s experience, track record, compliance program, resources dedicated to hiring and retaining qualified personnel, and information security resources. The Trustees also considered information provided by CSIM relating to each Fund’s portfolio management team, portfolio strategy and risk oversight structure, and internal investment guidelines. The Trustees also considered investments in CSIM’s mutual fund infrastructure, Schwab’s wide range of products, services, and channel alternatives such as investment and research tools, internet access, and an array of account features that benefit the Funds and certain of their shareholders. The Trustees also considered Schwab’s reputation as a full service brokerage firm and its overall financial condition. Finally, the Trustees considered that the vast majority of the Funds’ shareholders are also brokerage clients of Schwab. Following such evaluation, the Board concluded, within the context of its full deliberations, that the nature, extent and quality of services provided by CSIM to the

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Funds and the resources of CSIM and its affiliates dedicated to the Funds supported renewal of the Agreement with respect to the Funds.

Fund Performance. The Board considered Fund performance in determining whether to renew the Agreement with respect to the Funds. Specifically, the Trustees considered each Fund’s performance relative to a peer category of other mutual funds and appropriate indices/benchmarks, in light of total return, and market trends. As part of this review, the Trustees considered the composition of the peer category, selection criteria and the reputation of the independent provider of investment company data who prepared the peer category analysis. In evaluating the performance of each Fund, the Trustees considered the risk profile for such Fund and the appropriateness of the benchmark used to compare the performance of each Fund. The Trustees further considered the level of Fund performance in the context of their review of Fund expenses and adviser profitability discussed below and also noted that performance is reviewed throughout the year by a designated committee of the Board and by the Board. Following such evaluation the Board concluded, within the context of its full deliberations, that the performance of the Funds supported renewal of the Agreement with respect to the Funds.

Fund Expenses. With respect to the Funds’ expenses, the Trustees considered the rate of compensation called for by the Agreement, and each Fund’s net operating expense ratio, in each case, in comparison to those of a peer group of mutual funds, such peer groups and comparisons having been selected and calculated by an independent provider of investment company data. The Trustees considered the effects of CSIM’s and Schwab’s practice of voluntarily waiving management and other fees to prevent total Fund expenses from exceeding a specified cap. The Trustees also considered CSIM’s contractual commitment to keep each Fund’s expense cap for so long as CSIM serves as the adviser to such Fund. The Trustees also considered fees charged by CSIM to other mutual funds and to other types of accounts, which may include exchange-traded funds and separately managed accounts, but, with respect to such other types of accounts, accorded less weight to such comparisons due to the different legal, regulatory, compliance and operating features of mutual funds as compared to these other types of accounts, and any differences in the nature and scope of the services CSIM provides to these other accounts, as well as differences in the market for these types of accounts. Following such evaluation, the Board concluded, within the context of its full deliberations, that the expenses of the Funds are reasonable and supported renewal of the Agreement with respect to the Funds.

Profitability. The Trustees considered the compensation flowing to CSIM and its affiliates, directly or indirectly, and

reviewed profitability on a pre-tax basis, without regard to distribution expenses. In this connection, the Trustees reviewed management’s profitability analyses and methodology. The Trustees also reviewed profitability of CSIM relating to the Schwab fund complex as a whole, noting the benefit to Fund shareholders of being part of the Schwab fund complex, including the allocations of certain fixed costs across the funds in the complex. The Trustees also considered any other benefits derived by CSIM from its relationship with the Funds, such as whether, by virtue of its management of the Funds, CSIM obtains investment information or other research resources that aid it in providing advisory services to other clients. The Trustees considered whether the varied levels of compensation and profitability under the Agreement and other service agreements were reasonable and justified in light of the quality of all services rendered to each Fund by CSIM and its affiliates. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the profitability of CSIM is reasonable and supported renewal of the Agreement with respect to the Funds.

Economies of Scale. The Trustees considered the existence of any economies of scale and whether those are passed along to a Fund’s shareholders through a graduated investment advisory fee schedule or other means, including any fee waivers or expense caps by CSIM and its affiliates. In this regard, and consistent with their consideration of Fund expenses, the Trustees considered that CSIM and Schwab have committed resources to minimize the effects on shareholders of diseconomies of scale during periods when Fund assets were relatively small through their contractual expense waivers. For example, such diseconomies of scale may particularly affect newer funds or funds with investment strategies that are from time to time out of favor, but shareholders may benefit from the continued availability of such funds at subsidized expense levels. The Trustees also considered the existing contractual investment advisory fee schedule relating to Schwab Health Care Fund that includes lower fees at higher graduated asset levels. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the Funds obtain reasonable benefit from economies of scale.

In the course of their deliberations, the Trustees did not identify any particular information or factor that was all important or controlling. Based on the Trustees’ deliberations and their evaluation of the information described above, the Board, including all of the Independent Trustees, approved the continuation of the Agreement with respect to the Funds and concluded that the compensation under the Agreement with respect to the Funds is fair and reasonable in light of such services and expenses and such other matters as the Trustees have considered to be relevant in the exercise of their reasonable judgment.

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Trustees and Officers

Independent Trustees
Name, Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served¹)	Principal Occupations During the Past Five Years	Number of Portfolios in Fund Complex Overseen by the Trustee	Other Directorships
Robert W. Burns 1959 Trustee (Trustee of Schwab Strategic Trust since 2009; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016)	Retired/Private Investor (Jan. 2009 – present). Formerly, Managing Director, Pacific Investment Management Company, LLC (PIMCO) (investment management firm) and President, PIMCO Funds.	108	Director, PS Business Parks, Inc. (2005 – 2012)
John F. Cogan 1947 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Laudus Trust since 2010; Schwab Strategic Trust since 2016)	Senior Fellow, The Hoover Institution at Stanford University (public policy think tank) (Oct. 1979 – present); Senior Fellow, Stanford Institute for Economic Policy Research (2000 – present); Professor of Public Policy, Stanford University (1994 – 2015).	108	Director, Gilead Sciences, Inc. (2005 – present)
Stephen Timothy Kochis 1946 Trustee (Trustee of Schwab Strategic Trust since 2012; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016)	CEO and Owner, Kochis Global (wealth management consulting) (May 2012 – present); Chairman and CEO, Aspiriant, LLC (wealth management) (Jan. 2008 – Apr. 2012).	108	None
David L. Mahoney 1954 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016)	Private Investor.	108	Director, Symantec Corporation (2003 – present) Director, Corcept Therapeutics Incorporated (2004 – present) Director, Adamas Pharmaceuticals, Inc. (2009 – present)

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Independent Trustees (continued)
Name, Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served¹)	Principal Occupations During the Past Five Years	Number of Portfolios in Fund Complex Overseen by the Trustee	Other Directorships
Kiran M. Patel 1948 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016)	Retired. Executive Vice President and General Manager of Small Business Group, Intuit, Inc. (financial software and services firm for consumers and small businesses) (Dec. 2008 – Sept. 2013).	108	Director, KLA-Tencor Corporation (2008 – present)
Kimberly S. Patmore 1956 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016)	Consultant, Patmore Management Consulting (management consulting) (2008 – present).	108	None
Charles A. Ruffel 1956 Trustee (Trustee of Schwab Strategic Trust since 2009; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2015)	Co-Chief Executive Officer, Kudu Investment Management, LLC (financial services) (Jan. 2015 – present); Partner, Kudu Advisors, LLC (financial services) (June 2008 – Jan. 2015); Advisor, Asset International, Inc. (publisher of financial services information) (Aug. 2008 – Jan. 2015).	108	None
Gerald B. Smith 1950 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2000; Laudus Trust since 2010; Schwab Strategic Trust since 2016)	Chairman, Chief Executive Officer and Founder of Smith Graham & Co. (investment advisors) (Mar. 1990 – present).	108	Director, Eaton (2012 – present) Director and Chairman of the Audit Committee, Oneok Partners LP (2003 – 2013) Director, Oneok, Inc. (2009 – 2013) Lead Independent Director, Board of Cooper Industries (2002 – 2012)
Joseph H. Wender 1944 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Laudus Trust since 2010; Schwab Strategic Trust since 2016)	Senior Consultant, Goldman Sachs & Co., Inc. (investment banking and securities firm) (Jan. 2008 – present); Partner, Colgin Partners, LLC (vineyards) (Feb. 1998 – present).	108	Board Member and Chairman of the Audit Committee, Ionis Pharmaceuticals (1994 – present) Lead Independent Director and Chair of Audit Committee, OUTFRONT Media Inc. (2014 – present)

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Interested Trustees
Name, Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served¹)	Principal Occupations During the Past Five Years	Number of Portfolios in Fund Complex Overseen by the Trustee	Other Directorships
Walter W. Bettinger II² 1960 Chairman and Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Schwab Strategic Trust since 2009; Laudus Trust since 2010)	Director, President and Chief Executive Officer, The Charles Schwab Corporation (Oct. 2008 – present); President and Chief Executive Officer (Oct. 2008 – present), Director (May 2008 – present), Charles Schwab & Co., Inc.; Director, Charles Schwab Bank (Apr. 2006 – present); Director, Schwab Holdings, Inc. (May 2008 – present); and Director, Charles Schwab Investment Management, Inc. (July 2016 – present).	108	Director, The Charles Schwab Corporation (2008 – present)
Marie A. Chandoha² 1961 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016)	Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer (Sept. 2010 – Oct. 2011), Charles Schwab Investment Management, Inc.; Trustee (Jan. 2016 – present), President, Chief Executive Officer (Dec. 2010 – present), and Chief Investment Officer (Sept. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; Director, Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited (Jan. 2011 – present); Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (investment management firm) (Mar. 2007 – Aug. 2010).	108	None
Joseph R. Martinetto² 1962 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016)	Senior Executive Vice President (July 2015 – present), Chief Financial Officer (July 2015 – May 2017), Executive Vice President and Chief Financial Officer (May 2007 – July 2015), The Charles Schwab Corporation and Charles Schwab & Co., Inc.; Director, Charles Schwab & Co., Inc. (May 2007 – present); Director (Apr. 2010 – present) and Chief Executive Officer (July 2013 – Apr. 2015), Charles Schwab Bank; Director (May 2007 – present), Chief Financial Officer (May 2007 – May 2017), Senior Executive Vice President (Feb. 2016 – present), and Executive Vice President (May 2007 – Feb. 2016), Schwab Holdings, Inc.	108	None

Officers of the Trust
Name, Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served³)	Principal Occupations During the Past Five Years
Marie A. Chandoha 1961 President and Chief Executive Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2010)	Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer (Sept. 2010 – Oct. 2011), Charles Schwab Investment Management, Inc.; Trustee (Jan. 2016 – present), President, Chief Executive Officer (Dec. 2010 – present), and Chief Investment Officer (Sept. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; Director, Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited (Jan. 2011 – present); Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (investment management firm) (Mar. 2007 – Aug. 2010).
Mark Fischer 1970 Treasurer and Chief Financial Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2013)	Treasurer and Chief Financial Officer, Schwab Funds, Laudus Funds and Schwab ETFs (Jan. 2016 – present); Assistant Treasurer, Schwab Funds and Laudus Funds (Dec. 2013 – Dec. 2015), Schwab ETFs (Nov. 2013 – Dec. 2015); Vice President, Charles Schwab Investment Management, Inc. (Oct. 2013 – present); Executive Director, J.P. Morgan Investor Services (Apr. 2011 – Sept. 2013); Assistant Treasurer, Massachusetts Financial Service Investment Management (May 2005 – Mar. 2011).

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Officers of the Trust (continued)
Name, Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served³)	Principal Occupations During the Past Five Years
George Pereira 1964 Senior Vice President and Chief Operating Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2004; Laudus Trust since 2006; Schwab Strategic Trust since 2009)	Senior Vice President and Chief Financial Officer (Nov. 2004 – present), Chief Operating Officer (Jan. 2011 – present), Charles Schwab Investment Management, Inc.; Senior Vice President and Chief Operating Officer (Jan. 2016 – present), Treasurer and Chief Financial Officer, Laudus Funds (June 2006 – Dec. 2015); Treasurer and Principal Financial Officer, Schwab Funds (Nov. 2004 – Dec. 2015) and Schwab ETFs (Oct. 2009 – Dec. 2015); Director, Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited (Apr. 2005 – present).
Omar Aguilar 1970 Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011)	Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies, Charles Schwab Investment Management, Inc. (Apr. 2011 – present); Senior Vice President and Chief Investment Officer – Equities, Schwab Funds, Laudus Funds and Schwab ETFs (June 2011 – present); Head of the Portfolio Management Group and Vice President of Portfolio Management, Financial Engines, Inc. (investment management firm) (May 2009 – Apr. 2011); Head of Quantitative Equity, ING Investment Management (July 2004 – Jan. 2009).
Brett Wander 1961 Senior Vice President and Chief Investment Officer – Fixed Income (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011)	Senior Vice President and Chief Investment Officer – Fixed Income, Charles Schwab Investment Management, Inc. (Apr. 2011 – present); Senior Vice President and Chief Investment Officer – Fixed Income, Schwab Funds, Laudus Funds and Schwab ETFs (June 2011 – present); Senior Managing Director, Global Head of Active Fixed-Income Strategies, State Street Global Advisors (Jan. 2008 – Oct. 2010); Director of Alpha Strategies Loomis, Sayles & Company (investment management firm) (Apr. 2006 – Jan. 2008).
David Lekich 1964 Chief Legal Officer and Secretary, Schwab Funds and Schwab ETFs Vice President and Assistant Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011)	Senior Vice President (Sept. 2011 – present), Vice President (Mar. 2004 – Sept. 2011), Charles Schwab & Co., Inc.; Senior Vice President and Chief Counsel (Sept. 2011 – present), Vice President (Jan. 2011 – Sept. 2011), Charles Schwab Investment Management, Inc.; Secretary (Apr. 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab Funds; Vice President and Assistant Clerk, Laudus Funds (Apr. 2011 – present); Secretary (May 2011 – present) and Chief Legal Officer (Nov. 2011 – present), Schwab ETFs.
Catherine MacGregor 1964 Vice President and Assistant Secretary, Schwab Funds and Schwab ETFs Chief Legal Officer, Vice President and Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2005; Schwab Strategic Trust since 2009)	Vice President, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. (July 2005 – present); Vice President (Dec. 2005 – present), Chief Legal Officer and Clerk (Mar. 2007 – present), Laudus Funds; Vice President (Nov. 2005 – present) and Assistant Secretary (June 2007 – present), Schwab Funds; Vice President and Assistant Secretary, Schwab ETFs (Oct. 2009 – present).

¹	Each Trustee shall hold office until the election and qualification of his or her successor, or until he or she dies, resigns or is removed. The retirement policy requires that each independent trustee retire by December 31 of the year in which the Trustee turns 74 or the Trustee’s twentieth year of service as an independent trustee on any trust in the Fund Complex, whichever occurs first.
²	Mr. Bettinger, Ms. Chandoha and Mr. Martinetto are Interested Trustees. Mr. Bettinger is an Interested Trustee because he owns stock of The Charles Schwab Corporation (CSC), the parent company of Charles Schwab Investment Management, Inc. (CSIM), the investment adviser for the trusts in the Fund Complex, is an employee and director of Charles Schwab & Co., Inc. (CS&Co), the principal underwriter for The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios, and is a director of the investment adviser for the trusts in the Fund Complex. Ms. Chandoha is an Interested Trustee because she owns stock of CSC and is an employee and director of CSIM. Mr. Martinetto is an Interested Trustee because he owns stock of CSC and is an employee and director of CS&Co.
³	The President, Treasurer and Secretary/Clerk hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board.

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Glossary

asset allocation The practice of dividing a portfolio among different asset classes, with each asset class assigned a particular percentage.

asset class A group of securities with similar structure and basic characteristics. Stocks, bonds and cash are the three main examples of asset classes.

cap, capitalization See “market cap.”

Dividend Equity Spliced Index An internally calculated index, comprised of the S&P 500 Index from inception of the Schwab Dividend Equity Fund until the close of business on February 27, 2015, and the Russell 1000 Value Index thereafter.

Dow Jones Global Health Care Index An index that measures the performance of healthcare providers, researchers, and supplies producers around the world. The index is quoted in U.S. dollars.

market cap, market capitalization The value of a company as determined by the total value of all shares of its stock outstanding.

net asset value (NAV) The value of one share of a mutual fund. NAV is calculated by taking the fund’s total assets, subtracting liabilities, and dividing by the number of shares outstanding.

outstanding shares, shares outstanding When speaking of a company or mutual fund, indicates all shares currently held by investors.

price-to-book ratio (P/B) The market price of a company’s stock compared with its “book value.” A mutual fund’s P/B is the weighted average of the P/B of all stocks in the fund’s portfolio.

return on equity (ROE) The average yearly rate of return for each dollar of investors’ money, measured over the past five years.

Russell 1000 Growth Index An index that measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.

Russell 1000 Index An index that measures the performance of the 1,000 largest companies in the Russell 3000 Index, and represents approximately 92% of the total market capitalization of the Russell 3000 Index. The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market.

Russell 1000 Value Index An index that measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 Index companies with lower price-to-book ratios and lower expected growth values.

S&P 500 Index An index that is designed to measure the performance of 500 leading publicly traded companies from a broad range of industries.

stock A share of ownership, or equity, in the issuing company.

total return The percentage that an investor would have earned or lost on an investment in the fund assuming dividends and distributions were reinvested.

weighted average For mutual funds, an average that gives the same weight to each security as the security represents in the fund’s portfolio.

yield The income paid out by an investment, expressed as a percentage of the investment’s market value.

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PRIVACY NOTICE
THIS IS NOT PART OF THE SHAREHOLDER REPORT

A Commitment to Your Privacy

Your Privacy Is Not for Sale

We do not and will not sell your personal information to anyone, for any reason.

How We Collect Information About You

We collect personal information about you in a number of ways.

• APPLICATION AND REGISTRATION
INFORMATION.

• TRANSACTION AND EXPERIENCE
INFORMATION.

• WEBSITE USAGE.

How We Share and Use Your Information

We provide access to information about you to our affiliated companies, outside companies and other third parties in certain limited circumstances, including:

• to help us process transactions for your account;

• when we use other companies to provide services for us, such as printing and mailing your account statements;

State Laws

We will comply with state laws that apply to the disclosure or use of information about you.

Safeguarding Your Information — Security Is a
Partnership

We take precautions to ensure the information we collect about you is protected and is accessed only by authorized individuals or organizations.

We restrict access to personal information by our employees and agents. Our employees are trained about privacy and are required to safeguard personal information.

We maintain physical, electronic and procedural safeguards that comply with federal standards to guard your nonpublic personal information.

To provide us with updated information, report suspected fraud or identity theft, or for any other questions, please call the number below.

Schwab Funds^® direct investors: 1-800-407-0256

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Notes

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Charles Schwab Investment Management

As one of the nation’s largest asset managers, our goal is to provide investors with a diverse selection of foundational products that aim to deliver consistent performance at a competitive cost. The list below shows all currently available Schwab Funds.

Investors should carefully consider information contained in the prospectus, or if available, the summary prospectus, including investment objectives, risks, charges and expenses before investing. Please call 1-877-824-5615 for a prospectus for any Schwab Fund. Please read the prospectus carefully before you invest. This report must be preceded or accompanied by a current prospectus.

Proxy Voting Policies, Procedures and Results

A description of the proxy voting policies and procedures used to determine how to vote proxies on behalf of the funds is available without charge, upon request, by visiting the Schwab Funds’ website at www.schwabfunds.com/schwabfunds_prospectus, the SEC’s website at www.sec.gov, or by contacting Schwab Funds at 1-877-824-5615.

Information regarding how a fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available, without charge, by visiting the fund’s website at www.schwabfunds.com/schwabfunds_prospectus or the SEC’s website at www.sec.gov.

The Schwab Funds Family^®

Stock Funds

Schwab Core Equity Fund™

Schwab Dividend Equity Fund™

Schwab Large-Cap Growth Fund™

Schwab Small-Cap Equity Fund™

Schwab Hedged Equity Fund™

Schwab Health Care Fund™

Schwab^® International Core Equity Fund

Schwab Fundamental US Large Company Index Fund

Schwab Fundamental US Small Company Index Fund

Schwab Fundamental International Large Company Index Fund

Schwab Fundamental International Small Company Index Fund

Schwab Fundamental Emerging Markets Large Company Index Fund

Schwab Fundamental Global Real Estate Index Fund

Schwab Global Real Estate Fund™

Schwab^® S&P 500 Index Fund

Schwab 1000 Index^® Fund

Schwab Small-Cap Index Fund^®

Schwab Total Stock Market Index Fund^®

Schwab^® U.S. Large-Cap Growth Index Fund

Schwab^® U.S. Large-Cap Value Index Fund

Schwab^® U.S. Mid-Cap Index Fund

Schwab International Index Fund^®

Asset Allocation Funds

Schwab Balanced Fund™

Schwab MarketTrack Portfolios^®

Schwab Target Funds

Schwab Target Index Funds

Schwab^® Monthly Income Funds

Bond Funds

Schwab Intermediate-Term Bond Fund™

Schwab GNMA Fund™

Schwab^® Treasury Inflation Protected Securities Index Fund

Schwab^® U.S. Aggregate Bond Index Fund

Schwab^® Short-Term Bond Index Fund

Schwab Tax-Free Bond Fund™

Schwab California Tax-Free Bond Fund™

Schwab Money Funds

Schwab offers an array of money market funds¹. Choose from taxable or tax-advantaged alternatives. Some are linked to your eligible Schwab account to “sweep” cash balances automatically, subject to availability, when you’re between investments. Or, for your larger cash reserves, choose one of our Value Advantage Investments^®.

Investment Adviser

Charles Schwab Investment Management, Inc.

211 Main Street, San Francisco, CA 94105

Funds

Schwab Funds^®

1-877-824-5615

You could lose money by investing in a money market fund. All Schwab Money Funds with the exception of Schwab Variable Share Price Money Fund seek to preserve the value of your investment at $1.00 per share, but cannot guarantee they will do so. All Schwab Money Funds with the exception of Schwab Government Money Fund, Schwab Retirement Government Money Fund, Schwab U.S. Treasury Money Fund, Schwab Treasury Obligations Money Fund and Schwab Government Money Market Portfolio may impose a fee upon the sale of your shares or may temporarily suspend your ability to sell shares if the fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The money market fund’s sponsor has no legal obligation to provide financial support to the fund, and you should not expect that the sponsor will provide financial support to the fund at any time.

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Table of Contents

MFR26298-14
00201782

Annual Report | October 31, 2017

Schwab Balanced Fund^™

Schwab Balanced Fund

In This Report

Performance at a Glance	2
From the President	3
The Investment Environment	4
Fund Management	6
Performance and Fund Facts	7
Fund Expenses	10
Financial Statements and Portfolio Holdings	11
Financial Notes	17
Report of Independent Registered Public Accounting Firm	26
Other Federal Tax Information	27
Investment Advisory Agreement Approval	28
Trustees and Officers	30
Glossary	34

Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM).

Distributor: Charles Schwab & Co., Inc. (Schwab).

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Schwab Balanced Fund

Performance at a Glance

Total Return for the 12 Months Ended October 31, 2017
Schwab Balanced Fund (Ticker Symbol: SWOBX)	15.90%
Balanced Blended Index	14.48%
Fund Category: Morningstar Allocation—50% to 70% Equity¹	13.46%
Performance Details	pages 7-9

Minimum Initial Investment²	$ 100

The components that make up the composite index may vary over time. For index definition, please see the Glossary.

¹	Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
²	Please see the fund’s prospectus for further detail and eligibility requirements.

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Schwab Balanced Fund

From the President

Marie Chandoha
President and CEO of
Charles Schwab Investment
Management, Inc. and the
fund covered in this report.

Dear Shareholder,

Investors tend to think about risk differently. But one ingredient we’ve found that holds fairly consistent is that while investors seek attractive returns, they also want to preserve their capital and protect against the downside. That’s why we seek to provide a set of products that suit a range of risk appetites.

The Schwab Balanced Fund is part of these efforts. It offers a diversified mix of assets across equity and bond funds in order to balance the growth opportunities of equity investing with the income opportunities presented by fixed income securities. Additionally, the fund has the ability to use more cash during those times when the management team deems it’s wise to take a more defensive posture.

At Charles Schwab Investment Management, we believe asset allocation funds should not only help investors manage risk, but also make clear the risks they’re assuming. That’s why we list a variety of measures on the fund’s factsheet and our website to help you understand its risk profile. We believe by including this information, you can gain a more holistic view of your overall risk exposure and make better investing decisions about the rest of your portfolio.

Our commitment to helping our shareholders manage risk through clear information and a disciplined approach continues to garner Charles Schwab Investment Management recognition as a trusted asset manager. Earlier this year, we were named one of Morningstar’s “9 Partners for the Next Decade,”¹ reflecting our differentiation, low costs, and repeatable investment strategies. While we’re proud of such achievements, most importantly, we’re honored to serve our investors. We’re committed to putting investors first—a commitment that will continue to inform how we operate and the decisions that we make.

Thank you for investing with Charles Schwab Investment Management, and for trusting us to help you achieve your financial goals. For more information about the Schwab Balanced Fund and for the fund’s financial statements, please continue reading this report. In addition, you can find further details about this fund by visiting our website at www.schwabfunds.com. We are also happy to hear from you at 1-877-824-5615.

Sincerely,

“ The Schwab Balanced Fund is part of these efforts. It offers a diversified mix of assets across equity and bond funds in order to balance the growth opportunities of equity investing with the income opportunities presented by fixed income securities.”

Management views may have changed since the report date.

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Schwab Balanced Fund

The Investment Environment

Over the 12-month reporting period ended October 31, 2017, both U.S. and international equity markets generated positive returns. Meanwhile, global bond yields generally rose, driving fixed income returns lower (bond yields and bond prices move in opposite directions). Global economic growth improved while central bank policies remained generally accommodative, despite some moves to reduce stimulative measures in the U.S. and in Europe. Due in part to solid global economic growth, traditionally cyclical sectors, such as Information Technology and Health Care, generally outperformed more value-oriented sectors, such as Consumer Staples and Energy. In this environment, the S&P 500^® Index, a bellwether for the overall U.S. stock market, returned 23.63%, while the MSCI EAFE^® Index (Net)*, a broad measure of developed international equity performance, returned 23.44%. In fixed-income markets, the Bloomberg Barclays U.S. Aggregate Bond Index returned 0.90% for the reporting period, and the Bloomberg Barclays U.S. Treasury Bills 1-3 Month Index returned 0.69%.

Asset Class Performance Comparison % returns during the 12 months ended October 31, 2017

For index definitions, please see the Glossary.

Data source: Index provider websites and CSIM.

Nothing in this report represents a recommendation of a security by the investment adviser.

Management views may have changed since the report date.

*	The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes.

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Schwab Balanced Fund

The Investment Environment (continued)

During the 12-month reporting period, monetary policy remained generally accommodative across the globe, though several central banks took steps toward tighter policies. In the U.S., the Federal Reserve (Fed) raised short-term interest rates three times over the reporting period, in December, March, and June, despite continued low levels of inflation. The increases were in increments of 0.25%, with the federal funds rate ending the reporting period in a range of 1.00% to 1.25%. However, even with progress toward a more normalized interest rate environment, U.S. interest rates remained low by historical averages. The Fed also announced in September it would begin unwinding its $4.5 trillion balance sheet in late 2017 by allowing securities to mature without reinvesting the proceeds. Outside the U.S., the European Central Bank (ECB) announced that while it would begin to slow the pace of its bond purchases, it would continue the bond buying program through September 2018. The Bank of England (BoE) maintained interest rates at or near record lows, while the Bank of Japan (BOJ) introduced yield curve management as a policy tool in September 2017 and maintained negative interest rates throughout the reporting period. Though inflation remained stubbornly low across much of Europe and Asia, the strengthening global economy prompted some central banks to reiterate that monetary policy normalization could occur sooner than some expect. In June, ECB president Mario Draghi hinted that investors should be prepared for balance sheet unwinding, and BoE governor Mark Carney in August cautioned that a rate increase may come as soon as within the next year. (After the end of the reporting period in early November, the BoE raised its benchmark rate to 0.5%—the first increase in 10 years.)

Market volatility was noticeably subdued over the reporting period, outside of a few bumps tied to political uncertainty in the U.S. and abroad and periods of escalating tensions in North Korea. Otherwise, market volatility, as measured by the CBOE Volatility Index^®¹ (or VIX^®), fell over the reporting period, hitting an all-time low in early October. These low levels of volatility, combined with high consumer confidence, contributed to the momentum-driven rally in cyclical sectors. Meanwhile, most equities rose over the 12-month reporting period, with stock markets in the U.S. reaching record highs several times over the year. In late 2016 and early 2017, U.S. stocks rallied amid expectations for policy changes from the Trump administration, including financial deregulation, increased infrastructure spending, and tax reform. As the reporting period continued and meaningful progress stalled in Washington, strong corporate earnings and solid underlying economic data drove the positive performance of U.S. stocks. Outside the U.S., the performance of international developed stocks continued to be supported by generally accommodative monetary policies and improving global growth.

During the 12-month reporting period, bond yields generally rose in both the U.S. and overseas, though remained low compared to historical averages. The yield on the 10-year Japanese government bond stayed near 0.00% due to the BOJ’s yield curve management policy tool, while the 10-year German bund yield fluctuated between 0.00% and 0.60% over the 12-month reporting period. In the U.S., the yield curve generally flattened, with short-term yields rising faster than longer-term yields. The yields on short-term bonds climbed in response to the three Fed interest rate increases, while the combination of strong economic growth and low inflation resulted in steadier longer-term yields.

¹	The CBOE Volatility Index^® (or VIX^®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices.

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Schwab Balanced Fund

Fund Management

Zifan Tang, Ph.D., CFA, Senior Portfolio Manager, is responsible for the management of the fund. She has served as portfolio manager of the fund since February 2012. Prior to joining CSIM in 2012, Ms. Tang was a product manager at Thomson Reuters and, from 1997 to 2009, worked as a portfolio manager at Barclays Global Investors, which was subsequently acquired by BlackRock.

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Schwab Balanced Fund

The Schwab Balanced Fund (the fund) seeks capital growth and income. To pursue its goal, the fund generally invests in a diversified group of other affiliated Schwab and/or Laudus Funds, in accordance with its target portfolio allocation. Normally, the fund invests 55% to 65% of its assets in equity securities (including stocks and equity funds) and 35% to 45% in fixed-income securities (including bonds and fixed income funds), and cash and cash equivalents (including money market funds). The fund’s allocation is designed to provide a mix of the growth opportunities of stock investing with the income opportunities of bonds and other fixed-income securities. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.

Market Highlights. Over the 12-month reporting period, U.S. markets generated positive returns. Economic data remained generally solid over the reporting period. The labor market strengthened as unemployment remained low and nonfarm payroll numbers continued to trend in line with expectations, though wage growth remained sluggish amid weak inflation. The Federal Reserve raised short-term interest rates three times over the reporting period, in December, March, and June, despite continued low levels of inflation. Market volatility was noticeably subdued over the reporting period, outside of a few bumps tied to political uncertainty in the U.S. and abroad and periods of escalating tensions in North Korea.

Performance. For the 12-month reporting period ended October 31, 2017, the fund returned 15.90%. The fund’s internally calculated comparative index, the Balanced Blended Index (the index), returned 14.48%.

Positioning and Strategies. Over the reporting period, the fund’s asset allocations were broadly in line with those of the index.

The fund’s U.S. equity allocations generated positive returns that contributed to the fund’s absolute performance. The Schwab Core Equity Fund, the fund’s largest position, returned 26.0%, contributing to total return, as well as contributing to relative performance. The Laudus U.S. Large Cap Growth Fund and the Laudus Small-Cap MarketMasters Fund (Select Shares) both contributed to total return, returning 29.9% and 26.0%, respectively. However, the Laudus Small-Cap MarketMasters Fund (Select Shares) detracted from the fund’s performance relative to the index.

The fixed-income allocation also generated positive returns, but generally dragged on relative performance. During the period, the Schwab U.S. Aggregate Bond Index Fund replaced the Schwab Total Bond Market Fund and returned 2.0%, contributing towards the fund’s return. The Schwab Intermediate-Term Bond Fund returned 0.2%. Both funds, however, underperformed their comparative indices and detracted from the fund’s performance relative to the index.

Management views and portfolio holdings may have changed since the report date.

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Schwab Balanced Fund

Performance and Fund Facts as of October 31, 2017

Performance of Hypothetical $10,000 Investment (October 31, 2007 – October 31, 2017)¹

Average Annual Total Returns¹

Fund and Inception Date	1 Year	5 Years	10 Years
Fund: Schwab Balanced Fund (11/18/96)	15.90%	9.41%	5.60%
Balanced Blended Index	14.48%	9.57%	6.33%
S&P 500^® Index	23.63%	15.18%	7.51%
Bloomberg Barclays U.S. Aggregate Bond Index	0.90%	2.04%	4.19%
Fund Category: Morningstar Allocation—50% to 70% Equity²	13.46%	7.87%	5.03%
Fund Expense Ratios³: Net 0.62%; Gross 0.68%

The first index listed for the fund is the fund’s primary benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.

For index definitions, please see the Glossary.

From June 3, 2002 to February 28, 2008, the fund used a manager of managers strategy, and therefore its performance during this time does not reflect the fund’s current multi-fund strategy and may have been different if it did.

¹	Fund expenses may have been partially absorbed by CSIM and its affiliates. Without these reductions, the fund’s returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
²	Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
³	As stated in the prospectus. Includes 0.62% of acquired fund fees and expenses, which are indirect expenses incurred by the fund through its investments in the underlying funds. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as the investment adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual ratios during the period, refer to the financial highlights section of the financial statements.

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Schwab Balanced Fund

Performance and Fund Facts as of October 31, 2017 (continued)

Statistics

Number of Holdings	7
Portfolio Turnover Rate	28%

Asset Class Weightings % of Investments¹

Top Holdings % of Net Assets^2,3

Portfolio holdings may have changed since the report date.

Small-company stocks are subject to greater volatility than many other asset classes.

The Laudus U.S. Large Cap Growth Fund is part of Laudus Trust and distributed by ALPS Distributors, Inc. The Laudus MarketMasters Funds are part of Schwab Capital Trust and distributed by Charles Schwab & Co., Inc.

¹	The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets.
²	This list is not a recommendation of any security by the investment adviser.
³	The holdings listed exclude any temporary liquidity investments.

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Schwab Balanced Fund

Fund Expenses (Unaudited)

Examples for a $1,000 Investment

As a fund shareholder, you may incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, transfer agent fees, and other fund expenses.

The expense examples below are intended to help you understand your ongoing cost (in dollars) of investing in the fund and to compare this cost with the ongoing cost of investing in other mutual funds. These examples are based on an investment of $1,000 invested for six months beginning May 1, 2017 and held through October 31, 2017.

Actual Return lines in the table below provide information about actual account values and actual expenses. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value ÷ $1,000 = 8.6), then multiply the result by the number given for the fund under the heading entitled “Expenses Paid During Period.”

Hypothetical Return lines in the table below provide information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed return of 5% per year before expenses. Because the return used is not an actual return, it may not be used to estimate the actual ending account value or expenses you paid for the period.

You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

	Expense Ratio (Annualized)^1,2	Effective Expense Ratio (Annualized)^3,4	Beginning Account Value at 5/1/17	Ending Account Value (Net of Expenses) at 10/31/17	Expenses Paid During Period 5/1/17-10/31/17^2,5	Effective Expenses Paid During Period 5/1/17-10/31/17^4,5
Schwab Balanced Fund
Actual Return	0.00%	0.58%	$1,000.00	$1,064.80	$0.00	$3.02
Hypothetical 5% Return	0.00%	0.58%	$1,000.00	$1,025.20	$0.00	$2.96

¹	Based on the most recent six-month expense ratio; may differ from the expense ratio provided in the Financial Highlights which covers a 12-month period.
²	Excludes acquired fund fees and expenses, which are indirect expenses incurred by the fund through its investments in underlying funds.
³	Based on the most recent six-month acquired fund fees and expense ratio; may differ from the acquired fund fees and expense ratio in the prospectus, which are based on estimated amounts for the current fiscal year.
⁴	Includes acquired fund fees and expenses, which are indirect expenses incurred by the fund through its investments in underlying funds.
⁵	Expenses for the fund are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by the 184 days of the period, and divided by the 365 days of the fiscal year.

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Schwab Balanced Fund

Financial Statements

Financial Highlights

	11/1/16– 10/31/17	11/1/15– 10/31/16	11/1/14– 10/31/15	11/1/13– 10/31/14	11/1/12– 10/31/13
Per-Share Data
Net asset value at beginning of period	$14.51	$15.40	$15.56	$14.28	$12.51
Income (loss) from investment operations:
Net investment income (loss)¹	0.21	0.19	0.18	0.16	0.14
Net realized and unrealized gains (losses)	1.96	0.00 ²	0.42	1.33	1.85
Total from investment operations	2.17	0.19	0.60	1.49	1.99
Less distributions:
Distributions from net investment income	(0.22)	(0.32)	(0.34)	(0.21)	(0.22)
Distributions from net realized gains	(0.86)	(0.76)	(0.42)	—	—
Total distributions	(1.08)	(1.08)	(0.76)	(0.21)	(0.22)
Net asset value at end of period	$15.60	$14.51	$15.40	$15.56	$14.28
Total return	15.90%	1.41%	3.95%	10.52%	16.13%
Ratios/Supplemental Data
Ratios to average net assets:
Net operating expenses³	—	0.00% ⁴	0.00% ⁴	0.00% ⁴	0.00% ⁴
Gross operating expenses³	0.06%	0.06%	0.07%	0.09%	0.10%
Net investment income (loss)	1.39%	1.34%	1.18%	1.09%	1.06%
Portfolio turnover rate	28% ⁵	19%	5%	27%	33%
Net assets, end of period (x 1,000,000)	$386	$282	$305	$202	$165

Calculated based on the average shares outstanding during the period.

Less than $0.005.

The expenses incurred by underlying funds in which the fund invests are not included in this ratio.

⁴

Less than 0.005%; the ratio of net operating expenses would have been 0.00%, if certain non-routine expenses and/or interest expense had not been incurred.

⁵

The portfolio turnover rate increased due to the in-kind transactions relating to Schwab Total Bond Market Fund and Schwab U.S. Aggregate Bond Index Fund. For comparison purposes, the portfolio turnover rate would have been 7% without including these transactions. There were no transaction costs associated with these transactions (see financial note 7).

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Schwab Balanced Fund

Portfolio Holdings as of October 31, 2017

This section shows all the securities in the fund's portfolio and their values as of the report date.

The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at www.sec.gov and may be viewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after the end of the month on the fund's website at www.schwabfunds.com/schwabfunds_prospectus.

Security	Number of Shares	Value ($)
Affiliated Underlying Funds 98.3% of net assets

Equity Funds 60.4%
Large-Cap 50.3%
Laudus U.S. Large Cap Growth Fund *	2,755,633	59,108,330
Schwab Core Equity Fund	5,525,048	134,590,159
		193,698,489
Small-Cap 10.1%
Laudus Small-Cap MarketMasters Fund, Select Shares	1,897,385	39,086,140
		232,784,629

Fixed-Income Funds 36.5%
Intermediate-Term Bond 36.5%
Schwab Intermediate-Term Bond Fund	4,160,907	41,817,118
Schwab U.S. Aggregate Bond Index Fund	9,820,402	98,989,652
		140,806,770

Security	Number of Shares	Value ($)
Money Market Fund 1.4%
Schwab Variable Share Price Money Fund, Ultra Shares 1.13% (a)	5,224,167	5,225,734
Total Affiliated Underlying Funds
(Cost $327,374,175)		378,817,133

Unaffiliated Underlying Funds 1.6% of net assets

Money Market Fund 1.6%
State Street Institutional U.S. Government Money Market Fund, Premier Class 0.96% (a)	6,313,260	6,313,260
Total Unaffiliated Underlying Fund
(Cost $6,313,260)		6,313,260

*	Non-income producing security.
(a)	The rate shown is the 7-day yield.

The fund may engage in certain transactions involving related parties. Pursuant to an exemptive order issued by the SEC, the fund may invest in other related funds. Below is a summary of the fund's transactions with its affiliated underlying funds during the period ended October 31, 2017:

Affiliated Underlying Funds	Balance of Shares Held at 10/31/16	Gross Purchases	Gross Sales	Balance of Shares Held at 10/31/17	Net Change in Unrealized Appreciation (depreciation)	Realized Gains (Losses)	Distributions Received*
Laudus Small-Cap MarketMasters Fund, Select Shares	1,668,454	359,611	(130,680)	1,897,385	$7,029,670	$420	$383,137
Laudus U.S. Large Cap Growth Fund	2,515,641	253,400	(13,408)	2,755,633	12,277,434	(23,810)	682,242
Schwab Core Equity Fund	5,023,249	801,706	(299,907)	5,525,048	25,120,629	(932,503)	1,680,787
Schwab Intermediate-Term Bond Fund	3,296,863	864,044	—	4,160,907	(848,888)	—	953,449
Schwab Total Bond Market Fund	7,384,445	296,916	(7,681,361)	—	(1,741,110)	467,481	778,048
Schwab U.S. Aggregate Bond Index Fund	—	9,968,380	(147,978)	9,820,402	119,998	2,466	1,179,957
Schwab Variable Share Price Money Fund, Ultra Shares	—	9,222,967	(3,998,800)	5,224,167	—	(300)	28,628
Total					$41,957,733	($486,246)	$5,686,248

*	Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds.

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Schwab Balanced Fund

Portfolio Holdings as of October 31, 2017 (continued)

The following is a summary of the inputs used to value the fund’s investments as of October 31, 2017 (see financial note 2(a) for additional information):

Description	Quoted Prices in Active Markets for Identical Assets (Level 1)	Other Significant Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total
Assets
Affiliated Underlying Funds¹	$378,817,133	$—	$—	$378,817,133
Unaffiliated Underlying Fund¹	6,313,260	—	—	6,313,260
Total	$385,130,393	$—	$—	$385,130,393

¹	As categorized in Portfolio Holdings.

The fund’s policy is to recognize transfers between Level 1, Level 2 and Level 3 as of the beginning of the fiscal year. There were no transfers between Level 1, Level 2 and Level 3 for the period ended October 31, 2017. Fund investments in underlying mutual funds are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3.

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Schwab Balanced Fund

Statement of Assets and Liabilities

As of October 31, 2017

Assets
Investments in affiliated underlying funds, at value (cost $327,374,175)		$378,817,133
Investments in unaffiliated issuers, at value (cost $6,313,260)		6,313,260
Receivables:
Fund shares sold		1,089,277
Dividends		266,269
Due from investment adviser		35,630
Prepaid expenses	+	19,082
Total assets		386,540,651
Liabilities
Payables:
Investments bought		857,511
Fund shares redeemed		92,358
Accrued expenses	+	65,551
Total liabilities		1,015,420
Net Assets
Total assets		386,540,651
Total liabilities	–	1,015,420
Net assets		$385,525,231
Net Assets by Source
Capital received from investors		333,931,802
Net investment income not yet distributed		2,261,130
Net realized capital losses		(2,110,659)
Net unrealized capital appreciation		51,442,958

Net Asset Value (NAV)
Net Assets	÷	Shares Outstanding	=	NAV
$385,525,231		24,705,622		$15.60

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Schwab Balanced Fund

Statement of Operations

For the period November 1, 2016 through October 31, 2017

Investment Income
Dividends received from affiliated underlying funds		$4,445,501
Dividends received from unaffiliated underlying funds	+	43,633
Total investment income		4,489,134
Expenses
Shareholder reports		51,125
Registration fees		42,104
Professional fees		28,141
Transfer agent fees		23,232
Portfolio accounting fees		17,422
Independent trustees’ fees		8,820
Custodian fees		1,162
Other expenses	+	6,713
Total expenses		178,719
Expense reduction by CSIM	–	178,719
Net expenses	–	—
Net investment income		4,489,134
Realized and Unrealized Gains (Losses)
Realized capital gain distributions received from affiliated underlying funds		1,240,747
Net realized losses on sales of affiliated underlying funds		(486,246)
Net realized gains on investments^*	+	78,694
Net realized gains		833,195
Net change in unrealized appreciation (depreciation) on affiliated underlying funds	+	41,957,733
Net realized and unrealized gains		42,790,928
Increase in net assets resulting from operations		$47,280,062

*	Fund received litigation proceeds from an unaffiliated investment that was held in a prior period.

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Schwab Balanced Fund

Statement of Changes in Net Assets

For the current and prior report periods

Operations
	11/1/16-10/31/17		11/1/15-10/31/16
Net investment income		$4,489,134	$3,835,878
Net realized gains		833,195	19,437,795
Net change in unrealized appreciation (depreciation)	+	41,957,733	(19,051,501)
Increase in net assets from operations		47,280,062	4,222,172
Distributions to Shareholders
Distributions from net investment income		(4,244,870)	(6,125,816)
Distributions from net realized gains	+	(16,885,712)	(14,319,966)
Total distributions		($21,130,582)	($20,445,782)

Transactions in Fund Shares
		11/1/16-10/31/17		11/1/15-10/31/16
		SHARES	VALUE	SHARES	VALUE
Shares sold		8,260,904	$122,413,364	5,997,037	$86,468,453
Shares reinvested		1,382,977	19,168,062	1,316,822	18,725,208
Shares redeemed	+	(4,360,274)	(64,024,141)	(7,731,157)	(112,621,617)
Net transactions in fund shares		5,283,607	$77,557,285	(417,298)	($7,427,956)
Shares Outstanding and Net Assets
		11/1/16-10/31/17		11/1/15-10/31/16
		SHARES	NET ASSETS	SHARES	NET ASSETS
Beginning of period		19,422,015	$281,818,466	19,839,313	$305,470,032
Total increase or decrease	+	5,283,607	103,706,765	(417,298)	(23,651,566)
End of period		24,705,622	$385,525,231	19,422,015	$281,818,466
Net investment income not yet distributed			$2,261,130		$1,863,577

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Schwab Balanced Fund

Financial Notes

1. Business Structure of the Fund:

Schwab Balanced Fund is a series of Schwab Capital Trust (the trust), a no-load, open-end management investment company. The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended (the 1940 Act). The list below shows all the funds in the trust as of the end of the period, including the fund discussed in this report, which is highlighted:

SCHWAB CAPITAL TRUST (ORGANIZED MAY 7, 1993)
Schwab Balanced Fund	Schwab Target 2045 Fund
Schwab ^® S&P 500 Index Fund	Schwab Target 2050 Fund
Schwab Small-Cap Index Fund^®	Schwab Target 2055 Fund
Schwab Total Stock Market Index Fund^®	Schwab Target 2060 Fund
Schwab International Index Fund^®	Schwab Fundamental US Large Company Index Fund
Schwab MarketTrack All Equity Portfolio™	Schwab Fundamental US Small Company Index Fund
Schwab MarketTrack Growth Portfolio™	Schwab Fundamental International Large Company Index Fund
Schwab MarketTrack Balanced Portfolio™	Schwab Fundamental International Small Company Index Fund
Schwab MarketTrack Conservative Portfolio™	Schwab Fundamental Emerging Markets Large Company Index Fund
Laudus Small-Cap MarketMasters Fund™	Schwab Fundamental Global Real Estate Index Fund
Laudus International MarketMasters Fund™	Schwab Target 2010 Index Fund
Schwab Core Equity Fund™	Schwab Target 2015 Index Fund
Schwab Dividend Equity Fund™	Schwab Target 2020 Index Fund
Schwab Large-Cap Growth Fund™	Schwab Target 2025 Index Fund
Schwab Small-Cap Equity Fund™	Schwab Target 2030 Index Fund
Schwab Hedged Equity Fund™	Schwab Target 2035 Index Fund
Schwab Health Care Fund™	Schwab Target 2040 Index Fund
Schwab ^® International Core Equity Fund	Schwab Target 2045 Index Fund
Schwab Target 2010 Fund	Schwab Target 2050 Index Fund
Schwab Target 2015 Fund	Schwab Target 2055 Index Fund
Schwab Target 2020 Fund	Schwab Target 2060 Index Fund
Schwab Target 2025 Fund	Schwab^® Monthly Income Fund - Moderate Payout
Schwab Target 2030 Fund	Schwab^® Monthly Income Fund - Enhanced Payout
Schwab Target 2035 Fund	Schwab^® Monthly Income Fund - Maximum Payout
Schwab Target 2040 Fund

The Schwab Balanced Fund is a single class “fund of funds” which seeks to achieve its investment objective by investing in a diversified group of other affiliated Schwab and/or Laudus Funds (the underlying funds), but also may invest in other unaffiliated, third party mutual funds, including exchange-traded funds (ETFs). In addition, the fund may invest a portion of its assets directly in equity and fixed-income securities to maintain its allocations.

The fund offers one share class. Shares are bought and sold at closing net asset value per share (NAV), which is the price for all outstanding shares of the fund. Each share has a par value of 1/1,000 of a cent, and the fund’s Board of Trustees (the Board) may authorize the issuance of as many shares as necessary.

The fund maintains its own account for purposes of holding assets and accounting, and is considered a separate entity for tax purposes. Within its account, the fund may also keep certain assets in segregated accounts, as required by securities law.

2. Significant Accounting Policies:

The following is a summary of the significant accounting policies the fund uses in its preparation of financial statements. The fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standard Codification Topic 946 Financial Services — Investment Companies. The accounting policies are in conformity with accounting principles generally accepted in the United States of America (GAAP).

The financial statements of the fund should be read in conjunction with the underlying funds’ financial statements. For more information about the underlying funds’ operations and policies, please refer to those funds’ semiannual and annual reports, which are filed and available on the U.S. Securities and Exchange Commission’s (SEC) website at www.sec.gov or at the SEC’s Public Reference Room in Washington D.C.

Effective August 1, 2017, the fund adopted disclosure requirement changes for SEC Regulation S-X. The adopted changes are reflected throughout this report.

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Financial Notes (continued)

2. Significant Accounting Policies (continued):

(a) Security Valuation:

Under procedures approved by the Board, the investment adviser has formed a Pricing Committee to administer the pricing and valuation of portfolio securities and other assets and to ensure that prices used for internal purposes or provided by third parties reasonably reflect fair market value. Among other things, these procedures allow the fund to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.

The fund values the securities in its portfolio every business day. The fund uses the following policies to value various types of securities:

• Underlying funds: Mutual funds are valued at their respective NAVs.

• Securities for which no quoted value is available: The Board has adopted procedures to fair value the fund’s securities when market prices are not “readily available” or are unreliable. For example, the fund may fair value a security when it is de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a price; or when a security’s primary trading market is closed during regular market hours. The fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. The Pricing Committee considers a number of factors, including unobservable market inputs when arriving at fair value. The Pricing Committee may employ techniques such as the review of related or comparable assets or liabilities, related market activities, recent transactions, market multiples, book values, transactional back-testing, disposition analysis and other relevant information. The Pricing Committee regularly reviews these inputs and assumptions to calibrate the valuations. Due to the subjective and variable nature of fair value pricing, there can be no assurance that the fund could obtain the fair value assigned to the security upon the sale of such security. The Board convenes on a regular basis to review fair value determinations made by the fund pursuant to the valuation procedures.

In accordance with the authoritative guidance on fair value measurements and disclosures under GAAP, the fund discloses the fair value of its investments in a hierarchy that prioritizes the significant inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). If inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the valuation. If the fund determines that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value.

The three levels of the fair value hierarchy are as follows:

• Level 1—quoted prices in active markets for identical securities—Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities. Investments in mutual funds are valued daily at their NAVs, which are classified as Level 1 prices, without consideration to the classification level of the specific investments held by an underlying fund.

• Level 3—significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments)—Investments whose values are classified as Level 3 prices have significant unobservable inputs, as they may trade infrequently or not at all. When observable prices are not available for these securities, the fund uses one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the fund in estimating the value of Level 3 prices may include the original transaction price, quoted prices for similar securities or assets in active markets, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3 prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the fund in the absence of market information. Assumptions used by the fund due to the lack of observable inputs may significantly impact the resulting fair value and therefore the fund’s results of operations.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

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Financial Notes (continued)

2. Significant Accounting Policies (continued):

The levels associated with valuing the fund’s investments as of October 31, 2017 are disclosed in the Portfolio Holdings.

(b) Security Transactions:

Interest income is recorded as it accrues. Dividends and distributions from portfolio securities and underlying funds are recorded on the date they are effective (the ex-dividend date), although the fund records certain foreign security dividends on the day it learns of the ex-dividend date. Any distributions from underlying funds are recorded in accordance with the character of the distributions as designated by the underlying funds.

(d) Expenses:

Expenses that are specific to the fund are charged directly to the fund. Expenses that are common to all funds within the trust generally are allocated among the funds in proportion to their average daily net assets. The fund bears its share of the acquired fund fees and expenses of the underlying funds, which are indirect expenses incurred by the fund through its investments in the underlying funds. Such expenses are reflected in the net asset values of the underlying funds.

(e) Distributions to Shareholders:

The fund makes distributions from net investment income and net realized capital gains, if any, once a year.

(f) Custody Credit:

The fund has an arrangement with its custodian bank, State Street Bank and Trust Company (State Street), under which the fund may receive a credit for its uninvested cash balance to offset its custody fees and accounting fees. The credit amounts, if any, are disclosed in the Statement of Operations as a reduction to the fund’s operating expenses.

(g) Accounting Estimates:

(h) Federal Income Taxes:

The fund intends to meet federal income and excise tax requirements for regulated investment companies under subchapter M of the Internal Revenue Code, as amended. Accordingly, the fund distributes substantially all of its net investment income and net realized capital gains, if any, to its respective shareholders each year. As long as the fund meets the tax requirements, it is not required to pay federal income tax.

(i) Indemnification:

Under the fund’s organizational documents, the officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business the fund enters into contracts with its vendors and others that provide general indemnifications. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the fund. However, based on experience, the fund expects the risk of loss attributable to these arrangements to be remote.

3. Risk Factors:

Investing in the fund may involve certain risks, as discussed in the fund’s prospectus, including, but not limited to, those described below. Any of these risks could cause an investor to lose money.

Asset Allocation Risk. The fund is subject to the risk that the selection of the underlying funds and the allocation of the fund’s assets among the various asset classes and market segments may cause the fund to underperform other funds with a similar investment objective.

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Financial Notes (continued)

3. Risk Factors (continued):

Conflicts of Interest Risk. The investment adviser’s authority to select and substitute underlying funds from a variety of affiliated and unaffiliated mutual funds and ETFs may create a conflict of interest because the fees paid to it and its affiliates by some underlying funds are higher than the fees paid by other underlying funds. The investment adviser also may have an incentive to select an affiliated underlying fund for other reasons, including to increase assets under management or to support new investment strategies. In addition, other conflicts of interest may exist where the best interests of the affiliated underlying fund may not be aligned with those of the fund. However, the investment adviser is a fiduciary to the fund and is legally obligated to act in the fund’s best interests when selecting underlying funds.

Market Risk. Financial markets rise and fall in response to a variety of factors, sometimes rapidly and unpredictably. As with any investment whose performance is tied to these markets, the value of an investment in the fund will fluctuate, which means that an investor could lose money over short or long periods.

Direct Investment Risk. The fund may invest a portion of its assets directly in equity and fixed income securities, as well as other mutual funds or ETFs, to maintain its asset allocations. The fund’s direct investment in these securities is subject to the same or similar risks as an underlying fund’s investment in the same security.

Underlying Fund Investment Risk. The value of an investment in the fund is based primarily on the prices of the underlying funds that the fund purchases. In turn, the price of each underlying fund is based on the value of its securities. The fund is subject to the performance, expenses and risks of the underlying funds in which it invests. Before investing in the fund, investors should assess the risks associated with the underlying funds in which the fund may invest and the types of investments made by those underlying funds. These risks include any combination of the risks described below, although the fund’s exposure to a particular risk will depend on the fund’s overall asset allocation and underlying fund allocation.

• Investment Risk. The fund may experience losses with respect to its investment in an underlying fund. Further, there is no guarantee that an underlying fund will be able to achieve its objective.

• Management Risk. Generally, the underlying funds are actively managed mutual funds. Any actively managed mutual fund is subject to the risk that its investment adviser (or subadviser(s)) will select or allocate assets that could cause the fund to underperform or otherwise not meet its objective. An underlying fund’s adviser applies its own investment techniques and risk analyses in making investment decisions for the underlying fund, but there can be no guarantee that they will produce the desired results.

• Equity Risk. The prices of equity securities rise and fall daily. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. In addition, equity markets tend to move in cycles, which may cause stock prices to fall over short or extended periods of time.

• Market Capitalization Risk. Securities issued by companies of different market capitalizations tend to go in and out of favor based on market and economic conditions. During a period when securities of a particular market capitalization fall behind other types of investments, the underlying fund’s performance could be impacted.

• Growth Investing Risk. An underlying fund’s investments in growth stocks can be volatile. Growth companies usually invest a high portion of earnings in their businesses and may lack the dividends of value stocks that can cushion stock prices in a falling market. The prices of growth stocks are based largely on projections of the issuer’s future earnings and revenues. If a company’s earnings or revenues fall short of expectations, its stock price may fall dramatically. Growth stocks may also be more expensive relative to their earnings or assets compared to value or other stocks.

• Fixed Income Risk. Interest rates rise and fall over time, which will affect an underlying fund’s yield and share price. A change in a central bank’s monetary policy or improving economic conditions, among other things, may result in an increase in interest rates. A rise in interest rates could cause an underlying fund’s share price to fall. The credit quality of a portfolio investment could also cause an underlying fund’s share price to fall. An underlying fund could lose money if the issuer or guarantor of a portfolio investment or the counterparty to a derivatives contract fails to make timely principal or interest payments or otherwise honor its obligations. Fixed income securities may be paid off earlier or later than expected. Either situation could cause an underlying fund to hold securities paying lower-than-market rates of interest, which could hurt the fund’s yield or share price. Below investment-grade bonds (junk bonds) involve greater credit risk, are more volatile, involve greater risk of price declines and may be more susceptible to economic downturns than investment-grade securities.

• ETF Risk. When an underlying fund invests in an ETF, it will bear a proportionate share of the ETF’s expenses. In addition, lack of liquidity in the market for an ETF’s shares can result in its value being more volatile than the underlying portfolio of securities.

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Financial Notes (continued)

3. Risk Factors (continued):

• Money Market Fund Risk. The fund may invest in underlying money market funds that either seek to maintain a stable $1 net asset value (“stable share price money market funds”) or that have a share price that fluctuates (“variable share price money market funds”). Although an underlying stable share price money market fund seeks to maintain a stable $1 net asset value, it is possible to lose money by investing in such a money market fund. Because the share price of an underlying variable share price money market fund will fluctuate, when the fund sells the shares it owns they may be worth more or less than what the fund originally paid for them. In addition, neither type of money market fund is designed to offer capital appreciation. Certain underlying money market funds may impose a fee upon the sale of shares or may temporarily suspend the ability to sell shares if such fund’s liquidity falls below required minimums.

• Foreign Investment Risk. An underlying fund’s investments in securities of foreign issuers may involve certain risks that are greater than those associated with investments in securities of U.S. issuers. These include risks of adverse changes in foreign economic, political, regulatory and other conditions; changes in currency exchange rates or exchange control regulations (including limitations on currency movements and exchanges); the imposition of economic sanctions or other government restrictions; differing accounting, auditing, financial reporting and legal standards and practices; differing securities market structures; and higher transaction costs. To the extent that an underlying fund invests a significant portion of its assets in any one country, the underlying fund will be subject to a greater risk of loss or volatility than if the underlying fund always maintained wide geographic diversity among the countries in which it invests.

• Emerging Markets Risk. Emerging market countries may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. Emerging market countries often have less uniformity in accounting and reporting requirements and greater risk associated with the custody of securities. In addition, the financial stability of issuers (including governments) in emerging market countries may be more precarious than in other countries. As a result, there will tend to be an increased risk of price volatility associated with an underlying fund’s investments in emerging market countries and, at times, it may be difficult to value such investments.

• Derivatives Risk. An underlying fund may use derivatives to enhance returns or hedge against market declines. Examples of derivatives are options, futures, options on futures and swaps. An option is the right to buy or sell an instrument at a specific price before a specific date. A future is an agreement to buy or sell a financial instrument at a specific price on a specific day. A swap is an agreement whereby two parties agree to exchange payment streams calculated in relation to a rate, index, instrument or certain securities and a predetermined amount. A credit default swap is an agreement in which the seller agrees to make a payment to the buyer in the event of a specified credit event in exchange for a fixed payment or series of fixed payments.

An underlying fund’s use of derivative instruments involves risks different from or possibly greater than the risks associated with investing directly in securities and other traditional investments. Certain of these risks, such as credit risk, leverage risk, liquidity risk, market risk and management risk, are discussed elsewhere in this section. An underlying fund’s use of derivatives is also subject to lack of availability risk, valuation risk, correlation risk and tax risk. Lack of availability risk is the risk that suitable derivative transactions may not be available in all circumstances for risk management or other purposes. Valuation risk is the risk that a particular derivative may be valued incorrectly. Correlation risk is the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset, rate or index. Tax risk is the risk that the use of derivatives may cause an underlying fund to realize higher amounts of short-term capital gain. An underlying fund’s use of derivatives could reduce the underlying fund’s performance, increase its volatility, and could cause the fund to lose more than the initial amount invested. The use of derivatives that are subject to regulation by the Commodity Futures Trading Commission (CFTC) by an underlying fund could cause the fund to become a commodity pool, which would require the fund to comply with certain CFTC rules.

• Leverage Risk. Certain underlying fund transactions, such as derivatives, short sales, reverse repurchase agreements, and mortgage dollar rolls, may give rise to a form of leverage and may expose an underlying fund to greater risk. Leverage tends to magnify the effect of any decrease or increase in the value of an underlying fund’s portfolio securities, which means even a small amount of leverage can have a disproportionately large impact on the underlying fund.

• Liquidity Risk. An underlying fund may be unable to sell certain securities, such as illiquid securities, readily at a favorable time or price, or an underlying fund may have to sell them at a loss.

• Portfolio Turnover Risk. Certain of the underlying funds may buy and sell portfolio securities actively. If they do, their portfolio turnover rate and transaction costs will rise, which may lower the underlying fund’s performance and may increase the likelihood of capital gains distributions.

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Financial Notes (continued)

3. Risk Factors (continued):

• Securities Lending Risk. An underlying fund may lend its portfolio securities to brokers, dealers, and other financial institutions. Securities lending involves the risk of loss of rights in, or delay in recovery of, the loaned securities if the borrower fails to return the security loaned or becomes insolvent.

• Mortgage-Backed and Mortgage Pass-Through Securities Risk. Certain of the mortgage-backed securities in which an underlying fund may invest are not backed by the full faith and credit of the U.S. government and there can be no assurance that the U.S. government would provide financial support to its agencies or instrumentalities where it was not obligated to do so. Mortgage-backed securities tend to increase in value less than other debt securities when interest rates decline, but are subject to similar risk of decline in market value during periods of rising interest rates. Because of prepayment and extension risk, mortgage-backed securities react differently to changes in interest rates than other bonds. Small movements in interest rates-both increases and decreases-may quickly and significantly affect the value of certain mortgage-backed securities. Transactions in mortgage pass-through securities primarily occur through to be announced (TBA) transactions. Default by or bankruptcy of a counterparty to a TBA transaction would expose an underlying fund to possible losses because of an adverse market action, expenses, or delays in connection with the purchase or sale of the pools of mortgage pass-through securities specified in the TBA transaction.

• Mortgage Dollar Rolls Risk. Mortgage dollar rolls are transactions in which an underlying fund sells mortgage-backed securities to a dealer and simultaneously agrees to repurchase similar securities in the future at a predetermined price. An underlying fund’s mortgage dollar rolls could lose money if the price of the mortgage-backed securities sold falls below the agreed upon repurchase price, or if the counterparty is unable to honor the agreement.

Please refer to the fund’s prospectus for a more complete description of the principal risks of investing in the fund.

4. Affiliates and Affiliated Transactions:

Investment Adviser

Charles Schwab Investment Management, Inc. (CSIM or the investment adviser), a wholly owned subsidiary of The Charles Schwab Corporation, serves as the fund’s investment adviser and administrator pursuant to an Investment Advisory and Administration Agreement between CSIM and the trust.

Shareholder Servicing

The Board has adopted a Shareholder Servicing Plan (the Plan) on behalf of the fund. The Plan enables the fund to bear expenses relating to the provision by financial intermediaries, including Charles Schwab & Co., Inc. (a broker-dealer affiliate of CSIM) (together, service providers), of certain account maintenance, customer liaison and shareholder services to the current shareholders of the fund. The fund is not subject to any fee under the Plan.

Expense Limitation

CSIM and its affiliates have agreed with the fund, for so long as CSIM serves as the investment adviser to the fund, which may only be amended or terminated with the approval of the Board, to limit the total annual fund operating expenses charged, excluding interest, taxes and certain non-routine expenses to 0.00%.

The agreement to limit the fund’s total expenses charged is limited to the fund’s direct operating expenses and, therefore, does not apply to underlying fund fees and expenses, which are indirect expenses incurred by a fund through its investments in the underlying funds.

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Financial Notes (continued)

4. Affiliates and Affiliated Transactions (continued):

Investments in Affiliates

The fund may engage in certain transactions involving related parties. Pursuant to an exemptive order issued by the SEC, the fund may invest in other related funds. As of October 31, 2017, the fund’s ownership percentages of other related funds’ shares are:

Laudus Small-Cap MarketMasters Fund, Select Shares	20.8%
Laudus U.S. Large Cap Growth Fund	3.3%
Schwab Core Equity Fund	5.7%
Schwab Intermediate-Term Bond Fund	12.8%
Schwab U.S. Aggregate Bond Index Fund	6.3%
Schwab Variable Share Price Money Fund, Ultra Shares	0.4%

Interfund Borrowing and Lending

Pursuant to an exemptive order issued by the SEC, the fund may enter into interfund borrowing and lending transactions with other funds in the Fund Complex (for definition refer to Trustees and Officers section). All loans are for temporary or emergency purposes and the interest rate to be charged will be the average of the overnight repurchase agreement rate and the short-term bank loan rate. All loans are subject to numerous conditions designed to ensure fair and equitable treatment of all participating funds. The interfund lending facility is subject to the oversight and periodic review by the Board. The fund had no interfund borrowing or lending activity during the period.

5. Board of Trustees:

The Board may include people who are officers and/or directors of CSIM or its affiliates. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trust was in compliance with these limitations throughout the report period. The trust did not pay any of these interested persons for their services as trustees, but it did pay non-interested persons (independent trustees), as noted on the fund’s Statement of Operations. For information regarding the trustees, please refer to the Trustees and Officers table at the end of this report.

6. Borrowing from Banks:

During the period, the fund was a participant with other U.S. registered investment companies managed by CSIM in a joint, syndicated, committed $555 million line of credit (the Syndicated Credit Facility), which matured on October 5, 2017. Under the terms of the Syndicated Credit Facility, in addition to the interest charged on any borrowings by a fund, the fund paid a commitment fee of 0.15% per annum on its proportionate share of the unused portion of the Syndicated Credit Facility. On October 5, 2017, the Syndicated Credit Facility was amended to run for a new 364 day period with an increased line of $605 million and a commitment fee of 0.15% per annum. There were no borrowings from the line of credit during the period.

Effective December 1, 2017, the fund is a participant with other U.S. registered investment companies managed by CSIM in a joint, unsecured, uncommitted $500 million line of credit (the Uncommitted Credit Facility), with State Street Bank and Trust Company, which matures on November 30, 2018. Under the terms of the Uncommitted Credit Facility, the fund pays interest on the amount it borrows.

The fund also has access to custodian overdraft facilities. The fund may have utilized the overdraft facility and incurred an interest expense, which is disclosed on the fund’s Statement of Operations, if any. The interest expense is determined based on a negotiated rate above the current Federal Funds Rate.

7. Purchases and Sales/Maturities of Investment Securities:

For the period ended October 31, 2017, purchases and sales/maturities of securities (excluding short-term obligations) were as follows:

Purchases of Securities	Sales/Maturities of Securities
$151,064,146	$87,467,704

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Financial Notes (continued)

7. Purchases and Sales/Maturities of Investment Securities (continued):

The purchases and sales of securities include transactions where the fund redeemed in-kind its positions in the Schwab Total Bond Market Fund and made a purchase in-kind into the Schwab U.S. Aggregate Bond Index Fund. In the transaction, the fund effected an in-kind redemption from the Schwab Total Bond Market Fund and simultaneously engaged in an in-kind purchase, using the securities and cash received, with Schwab U.S. Aggregate Bond Index Fund. The in-kind redemption and purchase were effected pursuant to the funds’ In-Kind Transactions Policy and Procedures adopted by the Board of Trustees. The fund realized gains (losses) in selling the Schwab Total Bond Market Fund and that amount is disclosed in the summary of the fund’s transactions with its affiliated underlying funds at the end of the fund’s Portfolio Holdings.

8. Redemption Fee:

Prior to February 28, 2017, the funds charged a 2.00% redemption fee on shares sold or exchanged within 30 days of the original purchase date. Such amounts are netted against redemption proceeds on the Statement of Changes in Net Assets. Effective February 28, 2017, the funds no longer charge redemption fees. The redemption fees charged during the current and prior periods were as follows:

Current Period (11/1/16-10/31/17)	Prior Period (11/1/15-10/31/16)
$1,999	$6,464

9. Federal Income Taxes:

As of October 31, 2017, the tax basis cost of the fund’s investments and gross unrealized appreciation and depreciation were as follows:

Tax cost	$336,242,851
Gross unrealized appreciation	$49,652,532
Gross unrealized depreciation	(764,990)
Net unrealized appreciation (depreciation)	$48,887,542

As of October 31, 2017, the components of distributable earnings on a tax basis were as follows:

Undistributed ordinary income	$2,261,130
Undistributed long-term capital gains	444,757
Net unrealized appreciation (depreciation) on investments	48,887,542
Total	$51,593,429

The primary difference between book basis and tax basis unrealized appreciation or unrealized depreciation of investments is the tax deferral of losses on wash sales. The tax cost of the fund’s investments, disclosed above, has been adjusted from the book amounts to reflect these unrealized appreciation or depreciation differences, as applicable.

Capital loss carryforwards may be used to offset future realized capital gains for federal income tax purposes. As of October 31, 2017, the fund had no capital loss carryforwards.

The tax basis components of distributions paid during the current and prior fiscal years were as follows:

Current period distributions
Ordinary income	$6,186,610
Long-term capital gains	14,943,972
Prior period distributions
Ordinary income	$6,797,035
Long-term capital gains	13,648,747

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Financial Notes (continued)

9. Federal Income Taxes (continued):

Capital shares	$—
Undistributed net investment income	153,289
Net realized capital gains (losses)	(153,289)

As of October 31, 2017, management has reviewed the tax positions for open periods (for federal purposes, three years from the date of filing and for state purposes, four years from the date of filing) as applicable to the fund, and has determined that no provision for income tax is required in the fund’s financial statements. The fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the period ended October 31, 2017, the fund did not incur any interest or penalties.

10. Custody Out-of-Pocket Fee Reimbursement:

In December 2015, State Street, the fund’s custodian, identified inconsistencies in the way in which clients were invoiced for categories of expenses, particularly those deemed out-of-pocket costs, during an 18-year period going back to 1998. The issue was the result of inaccurate billing rates that were not subsequently reviewed or adjusted. The amount of the difference in what was charged and what should have been charged, plus interest, was paid to the fund during the period ended October 31, 2017 as a reimbursement. State Street made payment to the fund if the inaccurate billing occurred when the fund’s operating expenses were not contractually waived by CSIM. If CSIM was contractually waiving fees when the inaccurate billing occurred, State Street made that payment directly to CSIM to the extent of amounts waived by CSIM; any additional amounts were applied to the fund. The amounts applied to the fund were recognized as a change in accounting estimate. This resulted in a decrease in Net expenses and an overall increase in Net assets. The payment is netted with Custodian fees in the fund’s Statement of Operations. Below are the amounts that were reimbursed to the fund and to CSIM for the period ended October 31, 2017:

	State Street to Fund	State Street to CSIM
Schwab Balanced Fund	$—	$3,423

11. Subsequent Events:

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Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Schwab Capital Trust and Shareholders of Schwab Balanced Fund

In our opinion, the accompanying statement of assets and liabilities, including the portfolio holdings, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Schwab Balanced Fund (one of the funds constituting Schwab Capital Trust, hereafter referred to as the “Fund”) as of October 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities and investments in the underlying funds as of October 31, 2017 by correspondence with the custodian and transfer agents of the underlying funds, respectively, or by other appropriate auditing procedures where replies were not received, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
San Francisco, California
December 15, 2017

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Other Federal Tax Information (unaudited)

For corporate shareholders, 30.03% of the fund’s dividend distributions paid during the fiscal year ended October 31, 2017, qualify for the corporate dividends received deduction.

For the fiscal year ended October 31, 2017, the fund designates $1,887,440 of the dividend distributions as qualified dividends for the purposes of the maximum rate under section 1(h)(11) of the Internal Revenue Code. Shareholders will be notified in January 2018 via IRS form 1099 of the amounts for use in preparing their 2017 income tax return.

Under section 852(b)(3)(C) of the Internal Revenue Code, the fund hereby designates $14,943,972 as long-term capital gain dividends for the fiscal year ended October 31, 2017.

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Investment Advisory Agreement Approval

The Board of Trustees (the Board or the Trustees, as appropriate) calls and holds one or more meetings each year that are dedicated, in whole or in part, to considering whether to renew the investment advisory and administration agreement (the Agreement) between Schwab Capital Trust (the Trust) and Charles Schwab Investment Management, Inc. (CSIM) with respect to the existing funds in the Trust, including Schwab Balanced Fund (the Fund), and to review certain other agreements pursuant to which CSIM provides investment advisory services to certain other registered investment companies. In preparation for the meeting(s), the Board requests and reviews a wide variety of materials provided by CSIM, including information about affiliates, personnel, business goals and priorities, profitability, third-party oversight, corporate structure and operations. As part of the renewal process, Independent Trustees’ legal counsel sends an information request letter to CSIM seeking certain relevant information. The responses by CSIM are provided to the Trustees for their review prior to their meeting, and the Trustees are provided with the opportunity to request any additional materials. The Board also receives data provided by an independent provider of investment company data. This information is in addition to the detailed information about the Fund that the Board reviews during the course of each year, including information that relates to the Fund’s operations and performance, legal and compliance matters, risk management, portfolio turnover, and sales and marketing activity. The Independent Trustees receive advice from Independent Trustees’ legal counsel, including a memorandum regarding the responsibilities of trustees for the approval of investment advisory agreements. In addition, the Independent Trustees meet in executive session outside the presence of Fund management and participate in question and answer sessions with representatives of CSIM.

approved the renewal of the Agreement with respect to the Fund for an additional one-year term at the meeting held on June 6, 2017.

The Board’s approval of the Agreement with respect to the Fund was based on consideration and evaluation of a variety of specific factors discussed at these meetings and at prior meetings, including:

1.	the nature, extent and quality of the services provided to the Fund under the Agreement, including the resources of CSIM and its affiliates dedicated to the Fund;
2.	the Fund’s investment performance and how it compared to that of certain other comparable mutual funds;
3.	the Fund’s expenses and how those expenses compared to those of certain other comparable mutual funds, exchange-traded funds and other accounts;
4.	the profitability of CSIM and its affiliates, including Charles Schwab & Co., Inc. (Schwab), with respect to the Fund, including both direct and indirect benefits accruing to CSIM and its affiliates; and
5.	the extent to which economies of scale would be realized as the Fund grows and whether fee levels in the Agreement reflect those economies of scale for the benefit of Fund investors.

Nature, Extent and Quality of Services. The Board considered the nature, extent and quality of the services provided by CSIM to the Fund and the resources of CSIM and its affiliates dedicated to the Fund. In this regard, the Trustees evaluated, among other things, CSIM’s experience, track record, compliance program, resources dedicated to hiring and retaining qualified personnel, and information security resources. The Trustees also considered information provided by CSIM relating to the Fund’s portfolio management team, portfolio strategy and risk oversight structure, and internal investment guidelines. The Trustees also considered investments in CSIM’s mutual fund infrastructure, Schwab’s wide range of products, services, and channel alternatives such as investment and research tools, internet access, and an array of account features that benefit the Fund and certain of its shareholders. The Trustees also considered Schwab’s reputation as a full service brokerage firm and its overall financial condition. Finally, the Trustees considered that many of the Fund’s shareholders are also brokerage clients of Schwab. Following such evaluation, the Board concluded, within the context of its full deliberations, that the nature, extent and quality of services provided by CSIM to the Fund and the resources of CSIM and its affiliates dedicated to the Fund supported renewal of the Agreement with respect to the Fund.

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Fund Performance. The Board considered Fund performance in determining whether to renew the Agreement with respect to the Fund. Specifically, the Trustees considered the Fund’s performance relative to a peer category of other mutual funds and appropriate indices/benchmarks, in light of total return, and market trends. As part of this review, the Trustees considered the composition of the peer category, selection criteria and the reputation of the independent provider of investment company data who prepared the peer category analysis. In evaluating the performance of the Fund, the Trustees considered the risk profile for the Fund and the appropriateness of the benchmark used to compare the performance of the Fund. The Trustees further considered the level of Fund performance in the context of their review of Fund expenses and adviser profitability discussed below and also noted that performance is reviewed throughout the year by a designated committee of the Board and by the Board. Following such evaluation the Board concluded, within the context of its full deliberations, that the performance of the Fund supported renewal of the Agreement with respect to the Fund.

Fund Expenses. With respect to the Fund’s expenses, the Trustees considered the rate of compensation called for by the Agreement, and the Fund’s net operating expense ratio, in each case, in comparison to those of a peer group of mutual funds, such peer groups and comparisons having been selected and calculated by an independent provider of investment company data. The Trustees considered the effects of CSIM’s and Schwab’s practice of voluntarily waiving management and other fees to prevent total Fund expenses from exceeding a specified cap. The Trustees also considered CSIM’s contractual commitment to keep the Fund’s expense cap for so long as CSIM serves as the adviser to the Fund. The Trustees also considered fees charged by CSIM to other mutual funds and to other types of accounts, which may include exchange-traded funds and separately managed accounts, but, with respect to such other types of accounts, accorded less weight to such comparisons due to the different legal, regulatory, compliance and operating features of mutual funds as compared to these other types of accounts, and any differences in the nature and scope of the services CSIM provides to these other accounts, as well as differences in the market for these types of accounts. The Trustees noted that shareholders of the Fund indirectly pay their pro rata share of the fees and expenses of the underlying funds in which the Fund invests. Following such evaluation, the Board concluded, within the context of its full deliberations, that the expenses of the Fund are reasonable and supported renewal of the Agreement with respect to the Fund.

methodology. The Trustees also reviewed profitability of CSIM relating to the Schwab fund complex as a whole, noting the benefit to Fund shareholders of being part of the Schwab fund complex, including the allocations of certain fixed costs across the funds in the complex. The Trustees considered that CSIM is not charging any management fees at the Fund level; it being understood that there is a management fee at the underlying fund level. The Trustees also considered any other benefits derived by CSIM from its relationship with the Fund, such as whether, by virtue of its management of the Fund, CSIM obtains investment information or other research resources that aid it in providing advisory services to other clients. Also, because the Fund invests a portion of its assets in other funds within the Schwab fund complex, the Trustees considered whether CSIM indirectly benefits from the Fund’s investments in other underlying funds managed by CSIM. The Trustees considered whether the varied levels of compensation and profitability under the Agreement and other service agreements were reasonable and justified in light of the quality of all services rendered to the Fund by CSIM and its affiliates. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the profitability of CSIM is reasonable and supported renewal of the Agreement with respect to the Fund.

Economies of Scale. The Trustees considered the existence of any economies of scale and whether those are passed along to the Fund’s shareholders through a graduated investment advisory fee schedule or other means, including any fee waivers or expense caps by CSIM and its affiliates. In this regard, and consistent with their consideration of Fund expenses, the Trustees considered that CSIM and Schwab have committed resources to minimize the effects on shareholders of diseconomies of scale during periods when Fund assets were relatively small through their contractual expense waivers. For example, such diseconomies of scale may particularly affect newer funds or funds with investment strategies that are from time to time out of favor, but shareholders may benefit from the continued availability of such funds at subsidized expense levels. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the Fund obtains reasonable benefit from economies of scale.

In the course of their deliberations, the Trustees did not identify any particular information or factor that was all important or controlling. Based on the Trustees’ deliberations and their evaluation of the information described above, the Board, including all of the Independent Trustees, approved the continuation of the Agreement with respect to the Fund and concluded that the compensation under the Agreement with respect to the Fund is fair and reasonable in light of such services and expenses and such other matters as the Trustees have considered to be relevant in the exercise of their reasonable judgment.

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Trustees and Officers

The tables below give information about the trustees and officers of Schwab Capital Trust, which includes the fund covered in this report. The “Fund Complex” includes The Charles Schwab Family of Funds, Schwab Capital Trust, Schwab Investments, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust. The Fund Complex includes 108 funds.

The address for all trustees and officers is 211 Main Street, San Francisco, CA 94105. You can find more information about the trustees and officers in the fund’s Statement of Additional Information, which is available free by calling 1-877-824-5615.

Independent Trustees
Name, Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served¹)	Principal Occupations During the Past Five Years	Number of Portfolios in Fund Complex Overseen by the Trustee	Other Directorships
Robert W. Burns 1959 Trustee (Trustee of Schwab Strategic Trust since 2009; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016)	Retired/Private Investor (Jan. 2009 – present). Formerly, Managing Director, Pacific Investment Management Company, LLC (PIMCO) (investment management firm) and President, PIMCO Funds.	108	Director, PS Business Parks, Inc. (2005 – 2012)
John F. Cogan 1947 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Laudus Trust since 2010; Schwab Strategic Trust since 2016)	Senior Fellow, The Hoover Institution at Stanford University (public policy think tank) (Oct. 1979 – present); Senior Fellow, Stanford Institute for Economic Policy Research (2000 – present); Professor of Public Policy, Stanford University (1994 – 2015).	108	Director, Gilead Sciences, Inc. (2005 – present)
Stephen Timothy Kochis 1946 Trustee (Trustee of Schwab Strategic Trust since 2012; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016)	CEO and Owner, Kochis Global (wealth management consulting) (May 2012 – present); Chairman and CEO, Aspiriant, LLC (wealth management) (Jan. 2008 – Apr. 2012).	108	None
David L. Mahoney 1954 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016)	Private Investor.	108	Director, Symantec Corporation (2003 – present) Director, Corcept Therapeutics Incorporated (2004 – present) Director, Adamas Pharmaceuticals, Inc. (2009 – present)

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Independent Trustees (continued)
Name, Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served¹)	Principal Occupations During the Past Five Years	Number of Portfolios in Fund Complex Overseen by the Trustee	Other Directorships
Kiran M. Patel 1948 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016)	Retired. Executive Vice President and General Manager of Small Business Group, Intuit, Inc. (financial software and services firm for consumers and small businesses) (Dec. 2008 – Sept. 2013).	108	Director, KLA-Tencor Corporation (2008 – present)
Kimberly S. Patmore 1956 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016)	Consultant, Patmore Management Consulting (management consulting) (2008 – present).	108	None
Charles A. Ruffel 1956 Trustee (Trustee of Schwab Strategic Trust since 2009; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2015)	Co-Chief Executive Officer, Kudu Investment Management, LLC (financial services) (Jan. 2015 – present); Partner, Kudu Advisors, LLC (financial services) (June 2008 – Jan. 2015); Advisor, Asset International, Inc. (publisher of financial services information) (Aug. 2008 – Jan. 2015).	108	None
Gerald B. Smith 1950 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2000; Laudus Trust since 2010; Schwab Strategic Trust since 2016)	Chairman, Chief Executive Officer and Founder of Smith Graham & Co. (investment advisors) (Mar. 1990 – present).	108	Director, Eaton (2012 – present) Director and Chairman of the Audit Committee, Oneok Partners LP (2003 – 2013) Director, Oneok, Inc. (2009 – 2013) Lead Independent Director, Board of Cooper Industries (2002 – 2012)
Joseph H. Wender 1944 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Laudus Trust since 2010; Schwab Strategic Trust since 2016)	Senior Consultant, Goldman Sachs & Co., Inc. (investment banking and securities firm) (Jan. 2008 – present); Partner, Colgin Partners, LLC (vineyards) (Feb. 1998 – present).	108	Board Member and Chairman of the Audit Committee, Ionis Pharmaceuticals (1994 – present) Lead Independent Director and Chair of Audit Committee, OUTFRONT Media Inc. (2014 – present)

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Interested Trustees
Name, Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served¹)	Principal Occupations During the Past Five Years	Number of Portfolios in Fund Complex Overseen by the Trustee	Other Directorships
Walter W. Bettinger II² 1960 Chairman and Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Schwab Strategic Trust since 2009; Laudus Trust since 2010)	Director, President and Chief Executive Officer, The Charles Schwab Corporation (Oct. 2008 – present); President and Chief Executive Officer (Oct. 2008 – present), Director (May 2008 – present), Charles Schwab & Co., Inc.; Director, Charles Schwab Bank (Apr. 2006 – present); Director, Schwab Holdings, Inc. (May 2008 – present); and Director, Charles Schwab Investment Management, Inc. (July 2016 – present).	108	Director, The Charles Schwab Corporation (2008 – present)
Marie A. Chandoha² 1961 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016)	Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer (Sept. 2010 – Oct. 2011), Charles Schwab Investment Management, Inc.; Trustee (Jan. 2016 – present), President, Chief Executive Officer (Dec. 2010 – present), and Chief Investment Officer (Sept. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; Director, Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited (Jan. 2011 – present); Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (investment management firm) (Mar. 2007 – Aug. 2010).	108	None
Joseph R. Martinetto² 1962 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016)	Senior Executive Vice President (July 2015 – present), Chief Financial Officer (July 2015 – May 2017), Executive Vice President and Chief Financial Officer (May 2007 – July 2015), The Charles Schwab Corporation and Charles Schwab & Co., Inc.; Director, Charles Schwab & Co., Inc. (May 2007 – present); Director (Apr. 2010 – present) and Chief Executive Officer (July 2013 – Apr. 2015), Charles Schwab Bank; Director (May 2007 – present), Chief Financial Officer (May 2007 – May 2017), Senior Executive Vice President (Feb. 2016 – present), and Executive Vice President (May 2007 – Feb. 2016), Schwab Holdings, Inc.	108	None

Officers of the Trust
Name, Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served³)	Principal Occupations During the Past Five Years
Marie A. Chandoha 1961 President and Chief Executive Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2010)	Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer (Sept. 2010 – Oct. 2011), Charles Schwab Investment Management, Inc.; Trustee (Jan. 2016 – present), President, Chief Executive Officer (Dec. 2010 – present), and Chief Investment Officer (Sept. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; Director, Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited (Jan. 2011 – present); Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (investment management firm) (Mar. 2007 – Aug. 2010).
Mark Fischer 1970 Treasurer and Chief Financial Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2013)	Treasurer and Chief Financial Officer, Schwab Funds, Laudus Funds and Schwab ETFs (Jan. 2016 – present); Assistant Treasurer, Schwab Funds and Laudus Funds (Dec. 2013 – Dec. 2015), Schwab ETFs (Nov. 2013 – Dec. 2015); Vice President, Charles Schwab Investment Management, Inc. (Oct. 2013 – present); Executive Director, J.P. Morgan Investor Services (Apr. 2011 – Sept. 2013); Assistant Treasurer, Massachusetts Financial Service Investment Management (May 2005 – Mar. 2011).

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Officers of the Trust (continued)
Name, Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served³)	Principal Occupations During the Past Five Years
George Pereira 1964 Senior Vice President and Chief Operating Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2004; Laudus Trust since 2006; Schwab Strategic Trust since 2009)	Senior Vice President and Chief Financial Officer (Nov. 2004 – present), Chief Operating Officer (Jan. 2011 – present), Charles Schwab Investment Management, Inc.; Senior Vice President and Chief Operating Officer (Jan. 2016 – present), Treasurer and Chief Financial Officer, Laudus Funds (June 2006 – Dec. 2015); Treasurer and Principal Financial Officer, Schwab Funds (Nov. 2004 – Dec. 2015) and Schwab ETFs (Oct. 2009 – Dec. 2015); Director, Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited (Apr. 2005 – present).
Omar Aguilar 1970 Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011)	Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies, Charles Schwab Investment Management, Inc. (Apr. 2011 – present); Senior Vice President and Chief Investment Officer – Equities, Schwab Funds, Laudus Funds and Schwab ETFs (June 2011 – present); Head of the Portfolio Management Group and Vice President of Portfolio Management, Financial Engines, Inc. (investment management firm) (May 2009 – Apr. 2011); Head of Quantitative Equity, ING Investment Management (July 2004 – Jan. 2009).
Brett Wander 1961 Senior Vice President and Chief Investment Officer – Fixed Income (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011)	Senior Vice President and Chief Investment Officer – Fixed Income, Charles Schwab Investment Management, Inc. (Apr. 2011 – present); Senior Vice President and Chief Investment Officer – Fixed Income, Schwab Funds, Laudus Funds and Schwab ETFs (June 2011 – present); Senior Managing Director, Global Head of Active Fixed-Income Strategies, State Street Global Advisors (Jan. 2008 – Oct. 2010); Director of Alpha Strategies Loomis, Sayles & Company (investment management firm) (Apr. 2006 – Jan. 2008).
David Lekich 1964 Chief Legal Officer and Secretary, Schwab Funds and Schwab ETFs Vice President and Assistant Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011)	Senior Vice President (Sept. 2011 – present), Vice President (Mar. 2004 – Sept. 2011), Charles Schwab & Co., Inc.; Senior Vice President and Chief Counsel (Sept. 2011 – present), Vice President (Jan. 2011 – Sept. 2011), Charles Schwab Investment Management, Inc.; Secretary (Apr. 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab Funds; Vice President and Assistant Clerk, Laudus Funds (Apr. 2011 – present); Secretary (May 2011 – present) and Chief Legal Officer (Nov. 2011 – present), Schwab ETFs.
Catherine MacGregor 1964 Vice President and Assistant Secretary, Schwab Funds and Schwab ETFs Chief Legal Officer, Vice President and Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2005; Schwab Strategic Trust since 2009)	Vice President, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. (July 2005 – present); Vice President (Dec. 2005 – present), Chief Legal Officer and Clerk (Mar. 2007 – present), Laudus Funds; Vice President (Nov. 2005 – present) and Assistant Secretary (June 2007 – present), Schwab Funds; Vice President and Assistant Secretary, Schwab ETFs (Oct. 2009 – present).

¹	Each Trustee shall hold office until the election and qualification of his or her successor, or until he or she dies, resigns or is removed. The retirement policy requires that each independent trustee retire by December 31 of the year in which the Trustee turns 74 or the Trustee’s twentieth year of service as an independent trustee on any trust in the Fund Complex, whichever occurs first.
²	Mr. Bettinger, Ms. Chandoha and Mr. Martinetto are Interested Trustees. Mr. Bettinger is an Interested Trustee because he owns stock of The Charles Schwab Corporation (CSC), the parent company of Charles Schwab Investment Management, Inc. (CSIM), the investment adviser for the trusts in the Fund Complex, is an employee and director of Charles Schwab & Co., Inc. (CS&Co), the principal underwriter for The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios, and is a director of the investment adviser for the trusts in the Fund Complex. Ms. Chandoha is an Interested Trustee because she owns stock of CSC and is an employee and director of CSIM. Mr. Martinetto is an Interested Trustee because he owns stock of CSC and is an employee and director of CS&Co.
³	The President, Treasurer and Secretary/Clerk hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board.

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Glossary

asset allocation The practice of dividing a portfolio among different asset classes, with each asset class assigned a particular percentage.

asset class A group of securities with similar structure and basic characteristics. Stocks, bonds and cash are the three main examples of asset classes.

Balanced Blended Index A custom blended index developed by CSIM that, effective August 1, 2013, is composed of 50% S&P 500 Index, 10% Russell 2000 Index, 25% Bloomberg Barclays U.S. Aggregate Bond Index, 12% Bloomberg Barclays U.S. Intermediate Aggregate Bond Index and 3% Bloomberg Barclays U.S. Treasury Bills 1 – 3 Month Index. Prior to August 1, 2013 the Balanced Blended Index was composed of 60% S& P 500 Index and 40% Bloomberg Barclays U.S. Aggregate Bond Index.

Bloomberg Barclays U.S. Intermediate Aggregate Bond Index An index that represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.

cap, capitalization See “market cap.”

Citigroup Non-U.S. Dollar World Government Bond Index A market capitalization index that measures the total rate of return performance for the government bonds of 22 countries, excluding the U.S., with a remaining maturity of at least 1 year.